When Should You Take Social Security?

You don’t think look old enough yet but, in reality, the day is right around the corner when you can actually begin to take Social Security benefits.

That day is when you turn 62. But that day is very likely that is not the day you want to alert Social Security that you are ready to receive funds designed as a continuing paycheck for retired Americans.

You may not yet be ready to retire. It is possible to continue working while receiving Social Security benefits, it is not a good idea if you are working full-time.

But let’s back up. How are your benefits calculated? And are they taxed?

The funds you will receive from Social Security are based on the funds you have put into the system since the day you had your first job in which federal tax dollars were withheld.

If you have had such a job for 10 years (or 40 credits, as the government figure it), you are invested in the retirement system. If you have had such a job for 35 years you will receive the maximum amount available under current law. 

Wait as long as possible

While 62 is your first possible age to take benefits, everyone has a legal “full retirement age’’ based on when you were born. If you were born after 1951, full retirement age is between 65 and 67. 

Your Social Security benefits continue to increase even after you reach your full retirement age, up to age 70 and 1/2, when you must begin to take “required minimum distributions” from the account, even if you don’t need the money. (A recent change in the law moved the RMD date to age 72.)

So, let’s consider the original question: When should you take Social Security? There is one easy answer, and that is, not until you absolutely need to.

Once you start accepting benefits the amount you receive in your first check is the amount you will receive monthly for the lifetime of your account, not counting an cost of living adjustments.

But, for every month you wait, your assigned amount increases. If you wait until after your “full retirement age,” there is an additional credit of 8% of your benefits added per year.

For example, if you wait two years after your “full retirement age”” your credit is 16 percent. If your “full retirement age’” is 66, and you wait until you are 70 to begin receiving your funds, you will be getting 32 percent more than you would have received otherwise. 

If you think about it, the “raise” you get for waiting makes sense. You will get the same money over your lifetime, on average. Waiting a few years should mean getting more later on.

That’s why waiting as long as possible is a good idea unless you have financial pressures that put you in a position where you need the funds. A quick visit to www.ssa.gov will let you know how much you will receive at the age of 62 and beyond, if you are not receiving the quarterly reports from the SSA (or don’t look at them when they show up in your mail).

Longevity matters

If it is your intention to work past age 62, however, taking your Social Security benefits is not a good idea in most cases. Once you pass a certain annual income, your Social Security benefits are decreased by $1 for every $2 you earn past that annual income level (which was $18,240 in 2020). 

While that sounds like punishment, it’s really just the system looking out for your long-term interests. The money withheld is given to you later on, at full retirement age, in the form on a higher payout.

There are two more key considerations: Your life expectancy and your spouse’s Social Security standing. 

If you expect to live a long and healthy life, waiting until you reach 70 or 72 years of age is the best idea. Your monthly amount increases with each month you choose not to take your Social Security benefits.

Those benefits run to the end of your life. If you are going to live into your 90s you will receive more money over time. 

The other consideration is your spouse’s Social Security situation. If your spouse earned more than you in his or her work life and also is nearing the age where taking Social Security benefits is a thought, you may want to go ahead and start your benefits and have your spouse’s benefit level grow.

Note, also, that when someone who is receiving Social Security benefits passes away, the surviving spouse gets those benefits along with their own. You want to consider your health and life expectancy again before deciding which spouse is going to start getting checks first.

There are tax considerations tied into other retirement income you are receiving. For instance, 13 states and the federal government tax Social Security income beyond certain thresholds, typically right around the poverty line.