It is wise for many to wait until age 70 before taking their benefit. Patience will end up paying you back in many ways over the years. Of course, each situation is unique so you want to focus on yours before making this really big decision. The key is to have a Social Security strategy, especially when you have a spouse. For example, one spouse may take their benefit at or before full retirement age while the other one, who has the bigger benefit, waits until 70 to lock in the biggest payout for the one who lives the longest. The key here is to have a plan that serves you and your family well now and most importantly, for decades to come. Think long term!!!!!
Here is another strategy when you are the survivor based on a spouse dying. The survivor benefit (must stay single until 60 and then you can remarry if you like) will kick in at 60 (earlier if disabled). Your benefit kicks in at 62. The Strategy here is to take the smaller benefit if you are going to retire early. Let's say your personal benefit is smaller. You would take your benefit at 62 and then when you hit FRA, you would take the survivor benefit and drop yours, allowing it to grow over that time and locking it in for the rest of your life. The opposite could also be true. You could take the survivor benefit at 60 and then drop it at 70 and take yours, which has grown dramatically over time.
It's worth discussing the solvency of Social Security. Do not listen to the fear mongers who tell you that system will not pay out the benefits you have been promised. This kind of manic behavior causes way too many people to take their benefits way too early because "I'm going to get whatever I can before the system goes broke!" Social Security will be here for a very long time. The system has changed over time and it will continue to change as folks get older and the benefits get paid. Taxes could go up for some. Benefits could go down or be pushed to a later date for others (those under 55 and more likely those under 30). In the meantime, tune out those who try to scare you!
The numbers reflected below identify my personal benefits. They are lower than many due to the fact I have not worked 35 years. When you retire at age 45 this will happen, that is unless you start putting money into Social Security at the age of 10 or so! Your top 35 years go into making up your benefit so remember that key point. For every year you go over the lower numbers (indexed for inflation so keep that in mind) you will end up with a bigger FRA benefit as the bigger number gets factored in. There is more to this subject than any one page blog can tell you. Read Graduation! and Get What's Yours (updated edition). Wisdom will follow. Let’s take a look.
- Age 62: $1,262 (go to socialsecurity.gov and see what your number is)
- Age 67: $1,792 (go to socialsecurity.gov and see what your number is)
- Age 70: $2,223 (go to socialsecurity.gov and see what your number is)
Taxes kick in at the federal level after your Adjusted Gross Income (AGI) goes over: $25,000 (Singles), $32,000 ( Couple filing a Joint Return). Some of your benefit can be taxed, but much of it will not. This issue is quite complicated and an explanation is below that might help. It is wise to try to educate yourself on this taxing issue as best you can so you can make informed choices on when to take a benefit and when to delay a benefit (you could have more than one benefit at a time available to you). Knowledge will guide you toward taking the right benefit at the right time as you try to reduce your taxes and increase your payout over time.
- 50%: $25,000 – $34,000 (Singles), $32,000 – $44,000 (Joint)
- 85%: Above $34,000 (Singles), Above $44,000 (Joint)
When considering how your benefit is taxed, the number you should be aware of when looking at this issue is your adjusted gross income (line 37 on your 1040 tax form). That number will include other income (including half of your social security check), like passive income (dividends, interest and capital gains), IRA withdrawals, net business income, etc. You want to have a tax plan when dealing with this issue! Most states will not tax your Social Security benefits, but some do so be sure to look into this issue based on where you will be living when taking these benefits. Be mindful that your benefit will grow by 76% from age 62 to 70. That is a great deal of money. Plan carefully!