Your decision to tap into your Social Security account depends on a number of variables, such as your personal health and financial situation. There are advantages of delaying drawing those benefits, which will increase monthly payments down the road. But you may need the money sooner or want to spend it before you’re too old to enjoy it.
The Case For Delaying Benefits
Bob Williams writing for Charles Schwab1 gives an example of a person born in 1951, who has a full retirement eligibility at age 66. Waiting just two years to age 68 to draw Social Security results in an increase in benefits of 8 percent per year, with that higher baseline in effect for the rest of the person’s life.
The Break-Even Bet
Another retirement planning guru writing for Kiplinger2 explains the “break-even age” for Social Security payments. That is the age when you will have received the same total dollar amount in Social Security payments whether you claimed benefits earlier or later during your eligibility age.
Say your monthly Social Security benefits amount to $2,102. Your full retirement age eligibility is 66. You decide to begin drawing your benefits at age 62. Your break-even age would be between 77 and 78. That means that after age 78, you will be drawing lesser monthly amounts than you could have if you had waited until full retirement age.
However, you may not want, nor are in a financial position, to wait four or five years to draw your benefits. You may be in poor health or don’t have the savings cushion you need to make ends meet. Similarly, you might want to opt for a lesser benefit during your 60s when you are able to use the income for travel and leisure. After age 70, you might not be physically able to do everything you do today.
Don’t Forget About Your Spouse
If you and your spouse receive separate benefit amounts that are significantly different, your spouse inherits the higher of the benefit amounts. If yours is the higher and you don’t have much life insurance, you could wait to delay applying for your benefits so that your surviving spouse will inherit you higher amount after you die.
Penalties for Working While Drawing Social Security
One disadvantage of claiming your Social Security benefit early comes into play if you continue to earn a wage while drawing benefits. If you are not at full retirement age, you lose $1 in benefits for every $2 you earn above an annual limit of $16,920 (in 2017). You lose another $1 in benefits for every $3 you earn above a higher limit of $44,880 (in 2017). When you reach full retirement age, your full benefits kick back in no matter how much you earn.
Will Social Security Still Be There When You Retire?
The Social Security Administration3 predicts that the combined Old Age and Survivors Insurance and Disability Insurance trust funds “will be able to pay for all benefits in full and on time until 2034.” Even if Congress fails to enact changes before then, the SSA estimates that it will be able to pay 79% of each benefit due.
Will Social Security be there for those reaching retirement age after 2034? According to a piece in the Retirement Living Information Center,4 the “short answer is that it probably will be paying out benefits for decades to come.” So, if you're considering claiming your Social Security benefits just because you feel Social Security may run out, that is likely not going to happen.