Personal Finance

Should You Wait to Take Social Security?

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Even if retirement is decades away, it is important to understand the basics of Social Security and get a good understanding of when you can (and when you should) begin collecting your benefits down the road. This is a good idea as you plan for retirement and determine how much money you need to save.

As you pay into the Social Security fund through taxes, you are working toward and building up benefits you can receive once you reach retirement age. It may seem simple, but retirement age varies partly based on your birth date, and the amount of Social Security benefits increases or decreases based on when you start taking them. Each month past your specific retirement age you delay receiving benefits, your Social Security grows, until you hit 70 when the benefit increase no longer applies.

Your Lifetime Earnings

To calculate your monthly benefit payments, the Social Security Administration considers your lifetime earnings, age when you begin to collect and your average life expectancy. How long you live greatly affects when is best for you to start collecting, but that cannot be predicted with certainty, and every family and financial situation varies. Consider what is best for you, but know that by waiting until age 70, you will receive an additional 8% a year for each year past your full retirement age.

Your Tax Implications

If that wasn’t reason enough, delaying your benefits can help you to avoid excessive taxation. If you take reduced Social Security early, you will likely need to withdraw money from your traditional individual retirement account, 401(k) or 403(b) to meet your spending habits. However, your withdrawals can push you into a higher tax bracket, and more of your Social Security benefit could be taxed.

The Drawbacks

There are, of course, some reasons not to delay your Social Security. One would be that you need the money to meet basic and immediate financial needs like housing and food. Also, you may (because of family history or some other factor) be concerned that you won’t live to the average life expectancy. Yet another reason you may want to take Social Security earlier, instead of delaying, is that you fear the current system structure will change in an unfavorable way to your personal situation. Ultimately you have to make the decision on when it is best to begin taking your Social Security payments.

Retirement should be seen as a time of enjoyment, but with increasing living and medical costs it is important to be prepared.  Before you reach the time of retirement, there are ways to ensure you will be able to afford the lifestyle you want by maximizing your Social Security benefits.

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