When to take social security? There are few factors to consider in order to make an informed decision.
Andrea J. Zoeller, CFP®
Aug. 3rd, 2016
Social Security has become a popular topic among many of our clients. One of the most common questions we hear at Mersberger Financial Group is “When is the best time to take Social Security?” In order to answer this question in the best interest of the client, there are a few factors that must be considered:
The earliest age to claim Social Security is 62 and full retirement age (FRA) for most people is between 66 and 67 depending on the year a person was born. The latest age someone can claim Social Security is 70. A 6% credit is added to the benefit for each year the benefit is delayed from ages 62 to FRA and an 8% credit is added to the benefit for each year the benefit is delayed from FRA to age 70. This translates to having a reduced benefit the earlier a benefit is claimed, such as age 62, and a maximized benefit if waiting until age 70.
The question of when to take Social Security is different for everyone and therefore requires a comprehensive approach to the planning process to arrive at the correct answer. Retirement age plays a role because that is the first step in determining if there will be a “gap” in income that must be filled. The “gap” in income is the amount of time between retirement and claiming Social Security that must be filled by other income sources, such as investment assets. For example, a person who retires at age 62 and doesn’t claim a benefit until age 65, will have a 3-year gap that must be filled to adequately meet income needs.
The second key piece is determining an accurate retirement budget. This will help decide how much income must be taken from the portfolio to meet income needs during the time Social Security is delayed. This relates to the next point, which involves using investment assets to supplement income.
By delaying Social Security and using income from the investment assets, this creates a larger drawdown percentage in the portfolio. In some cases, this is advantageous because we can allow the Social Security benefit to grow if the portfolio is large enough to sustain a larger drawdown percentage. However, if the portfolio isn’t large enough to sustain this drawdown during that time period, then delaying Social Security probably isn’t the best strategy. For this reason, having an accurate retirement budget will aid in establishing which option your situation falls into.
Everyone’s situation is different when it comes to the best time to claim your Social Security benefit. As a result, it is important to have this discussion with a financial professional who is familiar with the different areas of Social Security planning.
Please contact our office if you have any questions regarding this topic.
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