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By Julie Betchwars, CFP, Senior Wealth Advisor

 

  

After decades of working, it can be tempting to file for your Social Security retirement benefits as soon as you can, which is at age 62. However, it can be advantageous to wait if you are in a position to do so. Consider this: the current maximum annual Social Security benefit that can be claimed at age 62 is $28,368. If you wait until age 70 to file for Social Security, then the maximum benefit is more than $50,000 a year. The amount you claim (which is based on your earnings throughout your working life, or 35 years) will continue for the rest of your life. Clearly, if you plan to live to a ripe old age, that represents a significant reduction in money coming your way if you decide to take your Social Security benefits at age 62. 

Granted, some people need to take their Social Security benefits as soon as they are able, as they need that money to live on. However, for those who can afford to wait, the following are four reasons to do so: 

 

1. You are still working

If you are still employed, the government sets a limit on how much you can earn before the amount of Social Security benefits you can receive is reduced. That limit is currently $19,560, after which Social Security benefits decrease by approximately one dollar for every two dollars earned above the threshold. If you earn significantly more than $19,560, taking early Social Security makes less and less sense the higher your income, potentially reducing it to next to nothing. 

However, once you have hit full retirement age, which is 67 for those who will turn age 62 this year, you can earn as much you want and still receive your full Social Security benefits. That alone can be reason not to take Social Security starting at age 62. 

 

2. You expect to live a long life

Are you in good health? Did your parents, aunts, uncles and older siblings live well into their 80s or 90s? If so, and you reasonably expect to live decades past retirement age, you might want to wait to take your Social Security benefits. 

It comes down to a “numbers game.” Essentially, if you expect to live at least until your late 70s, then it likely makes sense to wait until you reach full retirement age to claim your Social Security benefits, as that is the “break-even” age. In other words, if you believe you will live past 80, filing for Social Security benefits at your full retirement age likely makes the most sense. By doing so, you will likely receive the greatest amount of benefits over the course of your lifetime. However, if you have a serious health condition or family history that suggests you may not live past your late 70s, it might be advantageous to take your Social Security benefits “while you can,” before your full retirement age. 

For married couples, there is a survivor option with Social Security. The general rule of thumb is that the individual with the highest expected Social Security benefit should delay claiming that benefit if possible. That way, when that individual dies, the surviving spouse gets to keep the highest benefit.

 

3. You have deferred compensation

When you retire, will you receive deferred compensation payments for a period of time, or do you expect to reap the rewards of selling a business?

If either is the case, it is important to understand that even if your earned income has stopped, you may still have other types of income coming in. Even after retirement, deferred compensation can be paid out over several years, which can land you in a higher tax bracket. Because as much as 85% of Social Security benefits are taxable, you likely want to wait until your tax bracket is lower, which could be after any deferred compensation payments are exhausted. That can be another reason to wait to file for your Social Security benefits. 

 

4. You want time to do strategic tax planning

Even if you don’t have deferred compensation or the liquidity from the sale of a business or other significant income stream, it can be wise to work with your financial advisor to take a look at your pre-tax 401k or IRA investments and explore whether a Roth conversion makes sense for you in advance of claiming Social Security. A Roth IRA can be a wonderful legacy asset to “let those assets ride,” which means they can be held throughout your lifetime without any required minimum distributions and then be passed down to your heirs without any taxes owed. 

Another option is to look at low-cost basis stocks and non-qualified investment accounts to determine if you can realize capital gains at lower capital gains tax rates without increasing your income and “muddying the waters” by adding Social Security benefits to your taxable income. Doing so could push you into another capital gains tax bracket. Again, work closely with your financial advisor and CPA to discuss this sort of planning. 

 

 

Finally, a “bonus” reason to not claim Social Security benefits before your full retirement age has to do with Medicare. For most people, Medicare payments are approximately $170 per month. However, for those with significantly higher incomes, monthly Medicare payments can be as much as $650 a month. If you are, or expect to be, in a high-income bracket at retirement, that can be another reason to delay receiving Social Security benefits. 

In summary, unless you need to take your Social Security benefits at age 62 to fund immediate lifestyle expenses, it can be wise to delay until your full retirement age, or age 70, which is the age when Social Security benefits stop increasing. 

Contact CAISSA to explore when you should start receiving Social Security benefits.