“Joe, I enjoyed your workshop, but you have to stop using the word ‘depends’ when you’re talking to a bunch of old folks!”
This was the response I got from a gentleman in the crowd after giving a presentation on Social Security. I shared during the talk that there isn’t one best time to start Social Security benefits — and the right time for each individual depends on many factors.
So how can we determine when you should start your Social Security benefits if there’s not a “best” time? We look at the available information to make an educated decision. Here are the five questions we consider when helping our clients decide when to start taking Social Security income.
Question 1: Are you still working and under full retirement age?
Full retirement age (FRA) ranges from age 66 to 67, depending on your year of birth. If you begin benefits prior to FRA, then you can only make up to a certain amount each year from your job before your Social Security benefits are reduced. (The limit is $22,320 for 2024.)
If you make more than the limit, it may make sense to delay starting Social Security benefits to avoid reductions. Delaying also allows your Social Security benefits to keep growing, providing you with more monthly income for retirement. (This growth stops at age 70, however.)
Question 2: How’s your health?
Your current health status is an important consideration when thinking about starting Social Security benefits. Remember, you can delay your benefit up to age 70, and if you do, your benefits could nearly double from what they are at age 62.
There is a downside to delaying: If you’re eligible to receive partial benefits at age 62 and wait until age 70, you’ll go eight years with zero Social Security income. The break-even point (where it makes most sense to wait until 70) is somewhere between the ages of 80 and 83, depending on how you calculate it.
If your health is poor, you might consider turning on Social Security income earlier. But if you expect to live to and past age 80, it may make sense to delay in order to maximize your benefits. We don’t know what will happen down the road, but your current health could be a determining factor regarding when to start benefits.
Question 3: How much do you have in tax-deferred accounts?
Social Security was tax-free before the 1980s, but today, it can be taxable if you don’t plan appropriately. For many of our clients, we look at delaying Social Security benefits to age 70 and instead relying on income from tax-deferred vehicles such as a 401(k) or IRA.
Drawing down these accounts first has two distinct advantages. First, it allows our clients to increase their Social Security benefits. Second, it provides the opportunity to reduce required minimum distributions (RMDs) from tax-deferred accounts later, since RMDs are partially calculated based on the amount of money in the account. Since RMDs are taxable, reducing RMD amounts can result in a lower tax bill. This is particularly helpful for those who have $1 million or more saved in retirement accounts, such as an employer-sponsored retirement plan or IRA.
Question 4: What benefits will your spouse receive?
For married couples, we typically look at how much in Social Security benefits each spouse is entitled to receive. Spouses who haven’t qualified for benefits — usually because they stayed home or worked part time — can get half of their spouse’s Social Security benefits if their own benefits equal less than 50% of what the primary earner has earned.
For example, let’s say Jim qualifies for Social Security benefits of $3,000 per month when he reaches his full retirement age. His wife, Linda, stayed home for several years and then worked part time to be flexible for the family. She is eligible to receive $1,000 per month in benefits.
Under the spousal rule, Linda would be eligible to receive $1,500 in monthly benefits, half of the $3,000 in monthly Social Security income Jim will receive. The extra $500 per month could make a big difference for Jim and Linda as they grow older.
Question 5: What will happen to your spouse’s benefits if you die?
If you’re married and pass away, your spouse can elect to either keep their own benefits or take yours, whichever amount is higher. From the example above, say Jim passes away at age 75. Linda can either keep receiving her $1,500 monthly or drop her benefits and switch to Jim’s $3,000 benefits. (Obviously, we’d advise her to take the second option!)
Delaying benefits for the primary earner could result in more monthly income for the surviving spouse. On the other hand, starting benefits earlier may provide a couple with more income for the things they love to do together when they’re both still in good health.
While the gentleman who attended my workshop may have hated the word “depends,” deciding when to take Social Security benefits truly depends on your life and unique situation. Asking these five questions and pinpointing what works best for you can help you select the right time for turning on Social Security income.
Here are some resources from the Social Security Administration to help you answer questions about your benefits:
