Determining when to Take Social Security

​Deciding when to start taking Social Security benefits is one of the most crucial financial planning decisions you will make as you approach retirement. The timing of your claim can significantly impact your financial well-being throughout your retirement years. In this blog post, we will explore why it is essential to determine the right time to take Social Security and how we can help you in making a more informed decision.
 
Why Timing Matters
 
The age at which you begin claiming Social Security benefits affects the amount you receive monthly. Here are some key points to consider:

1. Early Claiming Reduces Benefits: You can start receiving Social Security benefits as early as age 62, but doing so will permanently reduce your monthly payments. For example, if your full retirement age (FRA) is 67 and you claim at 62, your benefits could be reduced by up to 30%1.
2. Full Retirement Age (FRA): Your FRA is the age at which you are entitled to receive 100% of your Social Security benefits. This age varies depending on your birth year but is generally around 66 to 67 for most people1.
3. Delayed Retirement Credits: If you delay claiming benefits beyond your FRA, your monthly benefit amount will increase. For each year you delay, up to the age of 70, you can receive an increase of about 8% per year. This can result in significantly higher lifetime benefits, especially if you live longer2.
4. Longevity and Health Considerations: Your health and life expectancy play a crucial role in deciding when to claim Social Security. If you expect to live longer, delaying benefits might be more advantageous. Conversely, if you have health concerns, claiming earlier might make more sense.
5. Spousal Benefits: If you are married, coordinating the timing of Social Security claims with your spouse can maximize your combined benefits. Understanding spousal and survivor benefits is essential for optimizing your overall retirement income2.

 
How We Can Help

We use a powerful financial planning tool called RightCapital. This is a powerful financial planning tool that can help you navigate the complexities of Social Security claiming strategies. Here is how it works:

​RightCapital's Social Security Optimization module allows you to compare different claiming strategies and their impact on your retirement income. You can examine the income amounts and break-even points for various filing strategies, helping you make an informed decision3.
 
Here we can see the software has computed the optimal strategy for this sample couple vs. their current desired ages for claiming social security (i.e., 62 years of age for both spouses), the difference in claiming strategy benefits is substantial at $951,513 over their expected lifetimes.

​Obviously, longevity figures into this strategy and many clients will question at what age is there a crossover or breakeven in benefits. In the case of this sample client, that breakeven is at age 77. If their family histories led them to believe they would not live to age 77, this client would obviously opt to take their benefits early. However, as a rule, most U.S. persons are living longer, and medical advances continue to extend the age the average American will survive too.

​A comparison graph allows us to look at all the options outlined by the software and to make certain judgements based on the varied scenarios as there is no one right answer for all clients. 

Finally, we can look at Social Security claiming if for example that the client had an aggressive reinvestment plan for such payments that made taking the benefits early. In this example, let us assume the client was involved in private equity and these funds would benefit from reinvestment at return rates greater than 10% per annum.
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In this case, the entire strategy is turned upside down and the couple then benefits from retiring earlier at age 67 for each (still not the early retirement they had initially desired).

Conclusion
Determining the right time to take Social Security is a critical decision that can have a lasting impact on your retirement income. By understanding the factors that influence your benefits and using tools like RightCapital, we can help you make informed decisions that maximize your financial well-being. Whether you choose to claim early, at your FRA, or delay until age 70, we can provide the insights and guidance you need to make the best choice for your unique situation.
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Feel free to reach out if you have any questions or need further assistance with your financial planning and wealth management!
 
1Charles Schwab Guide on Taking Social Security 
2 The Motley Fool on Social Security Benefits 
3 RightCapital Social Security Optimization Tool