Social Security - It's a Big Question
In my practice of advising clients around retirement income planning, this question often arises: "When is the best time for me to take Social Security?" And it's a hard one to answer objectively, given there are so many variables at play. Given we have no idea about a few things, such as:
- How long will we live?
- What will future benefits be like (the same, higher, lower)?
- What will future tax rates be?
We cannot answer those questions, but as an advisor we can always plan for the "What If's" and also review different options given the variables we can control. So what are the key considerations about your Social Security? Let's dive in!
The key details: For most of us, who have not started Social Security your "Full Retirement Age" is 67 years old, that is when your PIA (Primary Insurance Amount) will not be reduced. You can take Social Security as early as age 62 (or 60 if widowed or a widower) and defer to age 70. For the years following your Full Retirement Age, your PIA will grow by 8% per year.
The math behind it: Ideally, if you look at the highest lifetime income, if you wait until 70 and also live beyond age 83, you will get the highest payout. Many people feel this is always the best thing to do, but there are considerations here. The other filing strategy is also true; if you file early at say 62 years old, your benefits will grow much slower and be lower for your entire lifetime.
The Working Consideration: If you file your Social Security benefits before your Full Retirement Age (FRA), and are still working, there is a reduction in benefits if your earned income is over $23,400 (2025). Example, $1 is withheld for every $2 of earnings above that limit. However, one misconception is this is permanent, it is not. Your benefit amount, PIA, is increased at your FRA. Income from pensions, investments and passive incomes do not reduce your benefit, it is only earned income (salary, commissions, consulting fees, overtime, tips, etc.). Additionally, this adds more taxable income if you are still working. If you are still working and considering filing for Social Security it is recommended to discuss with a tax professional to plan.
The Spouse Consideration: Let's say one spouse has a PIA of $4,500 at 67 and the other has one of $1,000 at 67. In this scenario sometimes it does make sense to start the lower spouses benefit earlier, before their Full Retirement Age. At which point, the higher income earner can continue to grow. Why does this matter? It's math, let's say the higher PIA spouse waits until 68 - the $4,500/month benefit gets an 8% increase (not accounting for COLA increases) which is $360/month! The lower income spouse gets an $80/month increase between 67 and 68. Compound interest works best on a bigger number.
- One other consideration is survivor benefits. If the higher income spouse dies, while deferring or receiving their income, the surviving spouse will get an increase in their benefit.
The Asset Consideration: Another key consideration is what other assets does someone have? Do they have IRA or 401k funds? Roth IRA that can defer for a long-time? Stocks, bonds, annuities or pensions? All of these other sources matter. It's a consideration of determining how much someone needs per month, and the ideal time to access different accounts. Taxes matter as well, given IRA distributions are taxable, and Roth IRA distributions are tax free (if Qualified per IRS rules). And pensions can begin usually as early as your mid 50's.
The Health Consideration: One last thing to consider is health, if someone is in their early 60's and unhealthy, with the likelihood of not living long, they may want to file sooner, and begin supplementing their income. However, a lot of factors still are in play, and there are risks to review and discuss. Additionally, if someone has longevity in their favor, such as their parents living to 100, then they usually have a better benefit to wait. Longevity is a much larger risk and deferring Social Security is a great inflation and income hedge to living longer than you planned.
Social Security is not a simple thing, it's complex, and you only get 1 chance to make a change if you change your mind.
Do you need help reviewing your assets, income needs, and retirement goals? Please let me know. I work with dozens of clients wondering the same questions, with the same fears, and can help alleviate stress and also point out areas you may have not considered.