Question: I am 62 years old and still working. Should I start taking my social security benefits now or wait until I’m 66? The Social Security Administration says I can collect $1,800 a month now or $2400 per month if I wait. Or should I wait until 70?
Answer: Social security benefits are a fundamental component of our nation’s retirement system. You and your employer have been contributing to your social security account through payroll deductions over your entire working career, and as you approach retirement age you need to plan carefully to maximize the benefits you are due. The Social Security Administration defines full retirement age as 66 (this increases if you were born after 1954). You can start collecting benefits as early as age 62 but they will be reduced. If you do begin at 62, you get 75% of the monthly benefit you would otherwise get if you waited until 66. And if you are still working, you will lose $1 for every $2 you earn above $15,120.
My general advice is to wait as long as you can before claiming social security benefits unless medical reasons shorten your life expectancy. After all, social security is the only retirement annuity available to workers that is guaranteed by the federal government, has an annual cost of living increase, gets paid for as long as you live, and lets your spouse collect the amount you were collecting after you die (if her own benefit would be less).
Waiting until age 66 and collecting $2,400 instead of $1,800 per month will give you a 33.3% increase in monthly income. When you reach age 66, you should reevaluate your situation. If possible, delay collecting your benefits until age 70. If you do, your monthly benefit will be 32% higher than what you would receive if you started at age 66. This amount will be even higher if you take into account the annual cost of living (COLA) increases that are applied to the deferred payments. What if you wait until age 70 to collect? Your monthly benefit will be $3,168 and the annual COLA increase will apply to the entire amount. Sorry for the repetition here, but this $3,168 per month is guaranteed for the rest of your life, will increase each year with the cost of living and is guaranteed by the federal government, the only payer I know of that can print money if necessary to make sure you get your payment. There is no better offer out there.
If you retire at age 66, would like to wait to collect social security until age 70, and are looking for ways to pay the bills between now and then, don’t be bashful about using other savings accounts, investments accounts, and retirement accounts like an IRA. For the most part, these accounts are not guaranteed by the government, are not guaranteed to increase with cost of living allowances like social security, and are not guaranteed to last the rest of your life.
For married persons, there are numerous advanced social security tactics you can use to maximize your lifetime benefits. Married individuals should consult with their financial planner and ask for help before they start to collect benefits.
Kenneth B. Petersen CFP®, EA, MBA, AIFA® is an investment manager and Principal of Monterey Private Wealth, Inc., a wealth management firm in Monterey.