There is no universal answer to social security strategies.
Your situation will be different from your friend or neighbor.
There is no “one-size-fits-all” answer when it comes to social security.
After examining your individual circumstances, we can tell you what we believe is the right answer for your situation.
But you may not like what we have to say.
Coming to the right conclusion for you will depend on several circumstances. These include, but are not limited to, your desire to continue working. Do you need the money? What is your income projection? Are you carrying debt? Are you married or single? How is your health?
Social Security Website
The official social security website (ssa.gov) is an excellent resource. If you have not created your own account, I strongly suggest you do so immediately, at https://www.ssa.gov/myaccount/. Folks can learn a lot from the site, even just by examining their own data which can be found there.
Here are some actual numbers from an individual in her mid-fifties:
- If she decides to take social security at the earliest point in time (age 62) She would receive $2100 per month.
- Her current projected social security benefit at FRA (full retirement age, 67) will be $3100 per month.
- If she can defer taking social security until the latest point in time (age 70), the monthly benefit would be $3900 per month.
Notice the large gap between the decision to take social security at age 62 versus age 67 (considered full, or normal, retirement age). That is a $1000 per month difference, approximately 1/3rd less than the normal distribution a few years later, at age 67.
“But that’s My Money”
Interesting point to share. The individual sharing her documentation with us had $262,700 contributed to social security over her career, so far. Part of that money came from her paycheck, and part from her employers. You can see your own contribution levels on the social security website.
This individual is not ready to retire, she continues to work. Breaking down these numbers, it shows that she has personally contributed $154,029 so far from her paychecks. These are paychecks going all the way back to the 1980’s. And her employers contributed $108,671 over her career.
But go back to what she has paid directly into social security: $154,029. Yes, that is her money. We do not compound because she would have received this money over her career. Using the monthly benefit at her full retirement age of 67 ($3100), she paid in nearly 50 months of benefits. That is $154,029 divided by $3100, or 49.7 months. These are simple illustrations and do not include any cost of living adjustments or take overall inflation into consideration.
In “back of the envelope” terms, her first four years of monthly social security checks are her own money coming back to her. Everything beyond 49 months came from somewhere else. That includes employer contributions, earnings and compounding.
What if she chooses to take the early retirement monthly benefit ($2100) instead? “Her money” winds up being about 73 months, or six years of benefits. The math works out to $154,029 divided by $2100 per month. Think of that as her social security checks received from age 62 through age 68.
Why “35 years of work” matters
These numbers will all change as she continues to work until age 62, age 67 or age 70. Her higher earning years will cancel out the lower-earning years. This includes years where she was home and had no income while her family was growing. What some folks overlook is social security calculates your monthly benefit by looking at your 35 highest earning years.
Think about that. Suppose you began working at age 20 and had social security withheld from your check back then. Now fast-forward to age 52. That income from 1980 is still being factored into your retirement benefit. Your last few years of income (in your fifties and into your sixties) could “cancel” some of the early years of your career when you were probably not earning much.
Unless you played professional baseball or were in the NFL (or both, like this guy), your peak earning years are likely in your fifties, sixties and beyond.
I found a very interesting thread on Twitter the past few days. You may find it helpful what others in our industry are saying. Advisors and planners wrestle over social security decisions all the time.
It’s a discussion we have here with clients…but only on days ending in “y.”
We encourage folks to defer taking social security for as long as they can possibly manage.
- But some simply cannot wait, that is their personal financial situation.
- Some worry about dying early.
- And some worry the money won’t be there.
Some believe the money won’t be there (in the “social security lockbox”). We don’t know the future, but we remain amazed the Government was able to whip up trillions of dollars out of thin air for the virus and the resulting economic shutdown. Some want to defer taking money from their retirement account at work. Even though using the retirement account first, might be a better choice.
So many questions. Speak with your financial planner / investment advisor and get some options mapped out ahead of time.
Here is that Twitter thread:
And another thing about Social Security: People REALLY don’t love it when you say it’s a good idea to delay! One of my readers sends me near-daily emails about why I’m wrong about this. I’m half expecting to find him sitting in my living room some night when I get home. 🙄
— Christine Benz (@christine_benz) August 21, 2020