7 Keys to a Successful Retirement, Part 3: When Should You Start Social Security?

When Should You Start Your Social Security Benefits? — A Guide to Making the Right Choice

This week, we continue our series on the seven key factors for retirement success. Today’s focus is on Social Security, a crucial part of many people’s retirement plans.  

Watch How:  When Should You Start Your Social Security Benefits?  - A guide to making the right choice.

What is Social Security?

Social Security started in 1935 during the Great Depression. It was designed to provide retirees with a stable income. Nowadays, over 90% of Americans aged 65 and older receive Social Security benefits. For many, these benefits are a vital part of their retirement income. In fact, more than 65% of these seniors rely on Social Security for half of their total retirement income.

The Key Decision: When to Start Your Benefits

When it comes to Social Security, you only have one major decision to make: when to start your benefits. This choice can have a big impact on your retirement income. Let’s look at what you need to know.

Understanding Full Retirement Age

First, let’s talk about full retirement age (FRA). This is the age when you can start receiving Social Security benefits without any reduction. If you were born after 1960, your FRA is 67 years old. If you were born before 1960, your FRA is slightly earlier, depending on the exact year you were born.

This age is important because it affects whether your benefits will be reduced or increased. For example, if you start taking benefits at 62 (the earliest age you can start), your benefits will be reduced by about 30%. If you wait until after your FRA, you can earn delayed retirement credits, which increase your benefits by about 8% per year up until age 70.

Deciding When to Take Benefits

You have one big choice to make: when to start taking Social Security. According to a recent study, 43% of people plan to start their benefits before their FRA, meaning they’ll face a reduction. Before making this decision, consider these key factors:

1. Do You Need the Income?
   • Some people need to start Social Security early because they don’t have other sources of income. Others might be able to wait and benefit from larger payments.
2. Health and Longevity
   • If you’re in good health and have a family history of living a long life, delaying Social Security might be beneficial. However, if you have health issues or a shorter life expectancy, starting benefits earlier might make more sense.
3. Working After Retirement
   • If you plan to work part-time after retiring, be aware that your earnings could affect your Social Security benefits. You might end up having to pay back some of the benefits if you earn too much.
4. Consider Your Spouse
   • If you’re married, your decision can affect your spouse’s benefits as well. You’ll want to consider spousal and survivor benefits in your planning

How We Help You Decide

When it comes to Social Security, the decision isn’t just about the math. While it’s important to understand how delaying or starting early impacts your benefits, there are other factors to consider:

• Overall Financial Plan: We look at your complete financial picture. How much income will you need, and where will it come from if you delay or start early?
• Market Conditions and Investment Comfort: Some people are more comfortable with market risks and might delay Social Security to allow their investments to grow. Others prefer the certainty of starting benefits sooner.
• Life Expectancy: Although no one can predict the future, we use estimates to help plan for different scenarios.

Special Cases and Considerations

There are unique situations to consider, such as:

• Age Difference Between Spouses: If there’s a big age gap between you and your spouse, this can affect the best time to start benefits.
• Good Saving Habits: If you’ve saved well, you might have more flexibility in choosing when to start benefits.
• Windfall Elimination Provision and Government Pension Offset: If you work for a government agency and don’t pay into Social Security, these provisions might affect your benefits.

Final Thoughts

Choosing when to start Social Security is a major decision that can impact your retirement. It’s important to think carefully about your needs, health, and financial situation. Talking to experts, like the advisors at Commonwealth Financial, can help you make the best choice. Remember, you have only one chance to get this decision right, so it’s worth taking the time to plan carefully.