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When Should I File for Social Security Benefits?

There has been a general feeling among most people that the longer one waits to take their Social Security benefits, the more he or she is going to receive as a recipient. However, there is also the fact that the longer one takes to withdraw, the shorter a time period one might have due to health reasons to actually collect at all. So there is a bit of a tradeoff everyone should calculate for their personal situation and what they think might be the best play for retirement.

Should I Take Social Security Early?

Some argue a retiree should take his or her benefits as early as possible. Cash in hand is always better than a promise - "A bird in the hand" as they say. This of course means that while Social Security benefits can begin being withdrawn at age 62, the figure paid is much lower at this age than withdrawing it later on. However, the same recipient can also then use the funds, reinvestment and make them grow elsewhere.

On the other hand, if a person waits, the maximization of benefits waiting until age 70 or so can be a big difference in the actual monthly payment received by thousands of dollars. For example, for those born after 1960, the difference between taking benefits at age 62 versus 67 is about 30 percent, or $300 out of every $1,000 possible.1

READ: What is the Social Security Leveling Option?

For those who want to retire earlier, it means both waiting for eligibility to withdraw as well as making sure one has a plan of support until that age is reached. That means having enough savings to cover the gap, and that cost can be substantial as well. Prior to recording 35 years of work per Social Security, a person won’t realize a full benefit payment schedule.2 The figure may actually be even lower if any of the years were not full-time employment. 

There's also the caveat of earning money in later years. The traditional thinking has been that a person who worked for about 30 years and then retired, by the time he or she took their government benefits, the earnings would no longer be coming in and the person would receive benefits in a lower tax bracket. However, these days, working retirement is becoming far more common. And that means the income plus benefits plus any retirement account withdrawals starts to bump people up into more and more taxable brackets. So in some cases it starts to make sense to rely on earnings or savings first and hold off on withdrawing benefits to avoid unnecessary tax hits. On the other hand, others argue it's better to tax the government benefits early and then rely on personal savings later.

As you're going through the retirement planning process what you will find is that there is no clear default path to rely on. Each retiree has to map out his or her personal situation and make the best choice that applies at the time. However, those who research, educate themselves, and time their decisions right can often gain more than their peers who otherwise are the same in income, timing and age.

1 https://www.ssa.gov/planners/retire/agereduction.html

2 https://www.ssa.gov/planners/retire/1943.html

About Robert Henderson and Lansdowne Wealth Management

Robert Henderson is the President of Lansdowne Wealth Management, an independent, fee-only advisory firm in Mystic, CT. His firm specializes in financial planning and investment management for retirement, with a special focus on the particular needs of women that are divorced or widowed. He is an Accredited Asset Management Specialist and a Certified Divorce Financial Analyst. Mr. Henderson can be reached at 860-245-5078 or bhenderson@lwmwealth.com. You can also view his personal finance blog, The Retirement Workshop at http://lwmwealth.com/blog and the firm’s website at http://www.lwmwealth.com.

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