When Should Early Retirees Start to Take Social Security Benefits? [Video]

Many early retirees wonder when they should take social security benefits. In this video, we share some of the nuances for who can receive it, how much you could expect, and how to plan for your total retirement income.

https://youtu.be/16wWp5wI-sU

Video Transcript

When should you take Social Security? Wait too long and you could leave money on the table, take it too early and you might miss opportunities to reduce taxes or use your assets more efficiently.

Hello, my name is Michelle and I’m a financial advisor here at Financial Design Studio. We help business professionals retire in a tax-efficient way. Today we want to talk about when to take Social Security benefits. The media generally says wait as long as possible, but without coordinating the rest of your income, this might not actually improve your overall outcome.

What is Social Security?

Social Security is very simply money that’s taken out of your paycheck and Social Security Administration is a department of the government and so they’re holding these funds for you, tracking your earnings over your history of your working career.

Who Receives Social Security?

Well, employees who have earnings and this is being taken out of their paychecks. So this could be any job, just an hourly job or something that isn’t necessarily your long-term career. You’re getting a paycheck and social security is being withheld.

Once you’re married, maybe your spouse stays home and takes care of your family and doesn’t work. So there are spousal benefits and these are basically provided so that your spouse can get a benefit as well. And they’re eligible for up to 50% of your benefit if that’s higher than theirs, if they don’t have any wages. So spousal benefits are another way that people can receive social security benefits.

One that a lot of people forget is spouses who are married for more than 10 years. And now let’s say that after that time period, you get a divorce, you can still receive benefits from that spouse that you were married to if you were married for more than 10 years. A lot of people who might be single after their divorce, but were married for more than 10 years may forget or not realize that they would qualify or could qualify for benefits based on their prior spouse’s working record.

Now what’s interesting in this is that you also might have earnings. So it’s really a comparison of are your earnings higher on your own record or would you be getting more based on your spouse’s record and getting up to 50% of their benefits. So it really just depends and becomes a math equation.

Others are minor children. So think now, if you are an employee, you pass away, those social security benefits that you would have received will still now cover your minor children, So this is how those funds do get used or can be used even for family members for those minor children.

What Ages Can You Take Social Security?

The Social Security window is from ages 62 to age 70. Some point within that window is when you can elect to start your benefit. Full retirement age for most people is still age 66 to 67, depending on your birth date. Now again, in those other situations like we mentioned for children, there are other ages. So depending if they’re still minor children, there are other ages that would qualify under different circumstances. But we’re mainly talking about retirement benefits today.

How Much Will You Get?

The Social Security Administration will use your highest 35 working years of income. So for example, someone who starts working when they’re age 20 and then retires at age 67 has 47 years of earnings records with the Social Security Administration. The SSA will only pick the highest 35 years of earning in calculating your retirement benefit.

Let’s say that you don’t have full 35 working years. They’re using the earnings records that you have, and the 35 year is just the most years that they will use.

Now something that we do encourage everyone to do is to get a copy of your social security statement. It’s always a good idea to check and make sure that your earnings record is right. So you can log on to ssa.gov/myaccount. You create an account and now you’ll get a copy of your social security statement to ensure it’s accurate.

What Should Early Retirees Think About When Taking Social Security?

Everyone has a Full Retirement Age (FRA). So this FRA for most people is age 66 or age 67. So that’s where the government says this is the best time to take your benefit, but some things you need to think about are that you could also take it as early as age 62 or as late as age 70.

Now this is not necessarily something that they just automatically start sending you a check for. You need to apply for this to receive the benefits. So if you’re 70 and haven’t started this, this is something you need to apply for to receive these benefits that you’ve paid in from those paychecks over all of these years.

What Are the Trade Offs?

So let’s talk through the trade off of some of the options that you have. We have these different ages of 62 to 70 and that’s a pretty big window of time that you have to decide between.

And so this is where the Social Security Administration decides amount you’re going to get each month for the rest of your life. So they’ve calculated how much you’ve paid in and have set how much you’re going to receive in total. The only question is how big each payout will be.

If you decide that you want to take it earlier than that full retirement age, the SSA says, “that’s fine. You can start as early as 62, but you’re just going less each month.” You just get a smaller amount because you’re getting it for longer.

Now, likewise, if you say, “well I’m 66 or 67, maybe I am retired but don’t want to receive my benefits yet,” you can push it all the way back to age 70. But because you’ve delayed it, you’re taking it over a shorter time period. So the SSA decides you’re going to get more so that you receive the full amount in the end.

What Factors Should You Consider?

So this is where one of the trickiest things with social security is choosing when to take your benefit because nobody knows how long they’re going to live. So how do you decide when to take your Social Security benefit?

So the biggest one, is really family history Did your relatives, your parents, grandparents, did they have a long lifespan? Did they live into their 90s or did they die earlier, maybe in their late 70s? Let’s say you wait until age 70 and then you only collect social security for five years because you pass away when you’re age 75.

Something else are the assets that you have. So something that can be surprising for people when they’re choosing their social security and when they’re thinking about retirement is you might be surprised at how much you’ve actually saved in assets. So things like your 401k, retirement accounts, IRAs, things like that. When you’ve saved and you have money set aside for retirement, you may not have a strong need to receive Social Security on day one that you retire. So this might allow you to actually draw money from your accounts for several years.

Now something else to consider is just the income that you have. These could be things like pension, could be things like deferred compensation, especially for business leaders, could be employer stock. There could be a lot of benefits that you’re still receiving even once you’re retired or that you have saved up over the years. that’s all income potentially that is going to add up and be taxable and so we want to be careful of what tax bracket we’re staying within.

So many times we’re actually creating a timeline for your taxes. Your other forms of income might be set in stone. Social security is something that you can choose, and plan around!

When Should Early Retirees Take Social Security?

There really isn’t one magic age when everyone should take Social Security. And that’s why people nearing retirement work with financial advisors like us who manage investments alongside comprehensive planning.

This is how you create a tax-efficient retirement.

Your Next Steps

And if you want a team of financial advisors to support your retirement plan, this is what we do best. Our team specializes in tax efficient retirement planning for individuals with executive compensation. So you stay on track all year, every year, reach out to our team at to schedule a 30 minute consultation.

We’ll see you there or in the next video!

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