When Should I Start Taking My Social Security Payments?
That’s one of the most common questions we get as advisors. It’s an important question, too.
But a simple Google search on the subject will yield an untold number of experts, far too many to read. Look at just a few of them, though, and you will soon see that each advisor explains Social Security in a different way, and that many of them give conflicting advice. This post discusses a simple way to maximize social security benefits.
There Is A Simple Way to Look at It
Social Security is a complex subject. The absolute best way to handle it will depend on each person’s unique circumstances. But here is a point-of-view that is typically overlooked. We’ll use round numbers to simplify the discussion.
Spoiler Alert – Take the Money Now and Save It for Later
In a nutshell, that is the plan that works best for many people. Let’s work through a common scenario. Let’s use a typical senior as an example. We’ll call her Mary.
Suppose that Mary’s age to receive her full retirement benefit is 66. She can, however, elect to begin receiving Social Security payments at age 62. The drawback? Mary’s monthly check will be reduced by about 25%.
For example, let’s say that Mary would receive $2,000 per month if she waits till her 66th birthday to begin receiving her Social Security payments. At age 62, though, she can start receiving $1,500 monthly. That amount will continue for the remainder of her life.
The Common Advice is Wrong
Most advisors would tell Mary to wait the four years till she is 66 to start collecting her payments. They would say that gives her a better ‘rate of return.’ And maybe, by looking only at the numbers, that might be true. But what is being overlooked?
Money ‘In the Bank’ Now is Better Than Money in the Future
If Mary waits four years, she is giving up 48 monthly Social Security checks of $1,500 each. That amounts to a whopping $72,000!
If Mary does not need the money, she can simply deposit it into her bank account and build a nice nest egg. That’s a great plan for people who don’t have a lot of savings as they near retirement.
Our favorite investment, though, would be to deposit those checks into a nice fixed annuity. Her money would earn a lot more interest than it would in a bank, and Mary would still have a guarantee against market loss.
Mary Could Still Earn Money If She Wanted to Work
Mary could work part-time and earn up to about $17,000 (round numbers) without her check amount being reduced. Great. And if she does earn more than that, only one dollar out of every two (above the $17,000) would be penalized.
Penalty is not a good term, though. Any reduction in her checks would be credited to her Social Security numbers when she reaches full retirement age, in her case age 66. So, she would get some of it back.
If You Don’t Need the Money, But Have a Low Income, Take It Now
Does that description fit you? If so, you might want to consider taking your Social Security payments before you reach your full retirement age. As always, don’t jump into a major decision before you talk it over with your trusted advisor.
If you don’t have a trusted adviser, we’d be happy to talk it over with you.
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