When to Take Social Security
Basically, the mainstream schools of thought out there are to take it as soon as possible so that you can maximize the amount of total money drawn over your expected longevity, or take it as late as possible so that you can maximize your monthly income. Then, there is the issue of how soon that income is needed. If you are married, that will also affect when you want to start taking it. Whether or not your spouse worked, and how much social security benefit they expect to receive from their own social security benefit, will also play into your decision.
Setting The Stage...
The below example illustrates what I am doing because this works out best for my spouse and me. This is only an example and applies to our specific situation. But use this as information to give you ideas about strategies that may apply to you. Be sure to talk to a financial advisor about your specific situation and determine the right course of action for you and your family.
I am drawing a retirement pension from the US Navy, and recently retired from another job. But, I retired from this job much earlier than I had planned. This means that I am drawing less from this job's pension than I had counted on, so monthly income is a potential concern. However, I have a cushion in that I was able to sell back quite a bit of unused vacation time. Plus, I have some money left in an additional retirement savings plan where I worked, which is separate from my pension. After converting a large chunk of that additional money into an indexed annuity fund to use for retirement income later, we still have money left over to use for monthly income for a while. If we watch our budget, this money will last about five years. If I get another at least part-time job, that money will last even longer.
As I encourage all people to be doing, especially before contemplating retirement, we also saved up and put together a significant emergency fund so that we have actual, readily-available, liquid cash. This will be used for those large emergencies and unexpected expenses during the next few years when we will not be regularly contributing to our savings account.
The Plan...
I'm 62 now. In my example, let's say that my life expectancy is around age 82. If I take my monthly social security benefit right now, I will get 78.3% of my Full Retirement Age (FRA) social security. Drawing that from now until age 82 (just under 20 years from now), I would draw about $2,000 dollars a month, and get a total of roughly $480,000 dollars over the rest of my expected life.
As I mentioned, however, I was able to cash out unused vacation, and I have some money in the other retirement savings account, both of which can be used for monthly income. So with that in mind, I decided to wait until 67 and 2 months to begin drawing social security, which puts me at 104% of my FRA social security. That would give me about $2,900 dollars a month, for a total of $522,000 if I live until age 82 (just under 15 years from when I actually start drawing social security). That's about $900 a month more and a total draw of just over $42,000 dollars more doing it my way.
The other very important issue driving my decision is that my spouse will collect 50% of my social security, or all of her social security for which she is eligible, whichever is greater. My wife only worked sporadically, as she was mainly staying home and taking care of our family and household while I was deployed during my 20-year Navy career. After I left the Navy, she began working full time, but that did not build up her monthly social security benefit as if she had been working full time all those years. Now, she has quit working altogether so that she can dedicate full-time to caring for our grandchildren. Since her social security benefit is significantly smaller than mine, she will draw 50% of mine while we are both alive. When I die, if my spouse is still alive, she will get my full social security benefit. I want that monthly income number to be as high as possible. My waiting until FRA plus 2 months as described above maximizes our monthly income and her survivor benefit when I die.
Conclusion: The total money drawn over a lifetime with my plan is less if I take social security now. If I wait until at or after my FRA, our other savings will tide us over until then, and we will still have plenty of emergency cash. Waiting until I am age 67 and 2 months will help maximize our monthly income. This will also give my spouse greater income when she reaches her social security FRA.
Wrapping It All Up...
Everyone has different circumstances and different needs. Is monthly income needed right now? Or can you afford to wait until your social security monthly income will be greater before drawing your social security benefit? Did your spouse work and build up a significant social security benefit of their own? Or will they need to rely on your benefit in order to maximize their own social security income? These are all very important questions that must be taken into consideration before deciding on a social security strategy. In fact, you need to be thinking about these issues well before reaching social security age, and before retiring from your job.
Social security involves many potentially complex factors, and you need to decide how a particular social security strategy will work for you. Talk with a social security expert as part of your retirement preparation strategy.
Do a budget, get out of debt, and start putting money away for emergency savings and into retirement accounts as soon as possible. Having sufficient retirement income is the goal, and all of these things will play a vital role in that retirement income strategy.
Since "retiring" from my old 9-5 job, my new endeavor is building a coaching practice that allows me to help main-street families earn more income, become properly protected, debt-free, and financially independent. Ask me how I can help!
Comments
Post a Comment