When Should I Apply for Social Security?

By Carl Lachman, MBA, CFP®

How Long Are You Going To Live?

You can get Social Security as early as 62 years old or as late as 70. If you can tell me exactly how long you are going to live, I can tell you exactly when you should apply for Social Security. But, even if we knew that, and maximized your Social Security to a financial certainty, the difference between the worst time and the best time to take it might only be a $30,000 to $40,000 difference. Total. Over the rest of your life. Nothing to sneeze at, but not a pot of gold, either. Sorry, but like Po says in the animated Kung Fu Panda film, “…there is no secret ingredient!”

Full Retirement Age

Let’s start with the basics. If you get your benefits statement from the Social Security Administration (SSA), you will see that it talks about “full retirement age” (FRA). For everyone currently living, your FRA is 66-67 years old.

If you don’t have your benefits statement from the SSA, then now is the time to get one. The SSA used to send these to everyone in the mail, but today most of us need to look at our statement at the SSA.gov website. Create a “My Social Security” account at the website and once you have access (a few days later), look at your statement. You will learn a few things.

Your Social Security Statement

Your statement will show your monthly benefit amount at your full retirement age, but it will also show how much you can get if you take it at 62 years old and how much you will get if you wait until 70 years old. Take it earlier, get less. Take it later, get more.

For each month you take Social Security before your full retirement age, the SSA will reduce your monthly benefit by 5/9ths of 1%, which is a little more than 0.55% monthly or about 6.6% per year. If you take Social Security before your FRA, you get less per month for a longer period of time.

If you wait, however, your benefit will go up around 8% per year, with the maximum benefit received at 70 years old. If you take Social Security after your FRA, you get more per month for a shorter period of time.

It’s Actually All the Same

The Social Security benefits are calculated by some pretty bright people. If you live an average lifespan as determined by actuarial life expectancy tables, you will get the same amount whether you take the money early or late, after accounting for inflation. This is why when our financial advisors at Eclectic Associates run detailed retirement projections for our clients and account for inflation, the total lifetime difference between taking benefits early or late is usually around $30,000 to $40,000, and sometimes less.

If You Need the Money, Take It Early

If you must stop working and you don’t have enough saved to fund your retirement, then you might be forced to take Social Security early. This is not the end of the world. You get less, but you get it until you die.

If You Can Afford to Do So, Take It Later

If you have enough saved for your retirement, you have an emergency fund, and you won’t be placed in a financial pickle, then wait as long as possible to take Social Security. You will get more each month for the rest of your life. Especially if it looks like you will live into your 80’s or longer, you will probably come out ahead and beat those IRS accountants at their game!

How Long Have Your Parents Lived?

The information you need to consider to maximize your Social Security is probably information you already know and no one else does. It comes down to how long people usually have lived in your family tree.

If your parents and their parents and your siblings have all lived long lives, then you probably will, too. For whatever reason, if you were blessed by good genes and have relatives that usually live a long time, then you probably will, as well. If you will probably live a long time, then that argues toward taking Social Security later.

How is Your Health?

What would your doctor say if they evaluated you? Does your family have a history of diseases or health problems late in life? Have you been diagnosed with something that will shorten your life? Are you overweight? Do you have bad eating habits, never exercise, smoke, or drink too much? All of these things will probably shorten your life and would be reasons to take Social Security earlier.

You do not have to tell me, but you need to be truthful to yourself. Consider your long-term health when considering when to take Social Security. But, at the same time, keep some perspective: no one knows how long they will live. And remember that the actor and comedian George Burns lived to 100 years old, but every day smoked cigars and drank martinis. Surely humor had something to do with his longevity, so remember to laugh!

Spousal Benefits?

If you are married, you will get either the Social Security benefits you qualify for due to your earnings, or you will get a benefit equal to one half of your spouse’s monthly benefit, whichever is more. When your spouse eventually dies, you will continue to get your monthly benefit or theirs, whichever is more. There is some planning strategy here, which does not involve an “untimely death”.

Rather, sometimes it will be slightly beneficial for a high earning spouse to wait until 70 to claim their benefit, but earlier in life to claim their spousal benefit of half of their spouse’s Social Security. We do this sort of analysis for our clients when it is warranted or when a client asks the question. If you are not a client of Eclectic, then schedule an initial meeting with us and we can explain further.

Don’t Be Afraid of the Social Security Administration Office Near You

Most of the time our clients have good experiences when they have a meeting at a Social Security Administration office. It is not like the California DMV! Rather, the people are usually more helpful and knowledgeable at the SSA. They can accurately help you with your application and they can explain the specifics of your options, backing those answers up with specific amounts. They can tell you what is possible and what is not.

My own theory is that the SSA is easy to work with because the people that work there have a fun job: they give away money. Everyone they meet with starts getting a monthly transfer and is happy to get it. I think you will have a good experience when it comes time to apply for your Social Security benefit. Plan on setting up a meeting about 3 months before when you would like to have your benefits start. You don’t have to go to a SSA office and can instead apply online or by phone. Right now, during COVID-19, all SSA offices have been closed to the public since March 17, 2020.

Don’t Worry About Social Security Going Bankrupt

Worry about driving your car safely and avoiding bad drivers, but don’t get hoodwinked by a news story or a politician’s speech to worry about Social Security disappearing. Social Security will have plenty of money if sometime between now and 2040 (probably in the fall of 2039!) our politicians simply vote to index the full retirement age. If they change the FRA to 68 for everyone in their 40’s, 68.5 for everyone in their 30’s, 69 for everyone in their 20’s, etc, etc, etc, then voila, the problem will be fixed!

Your Next Step

Although our firm is a fee-only financial planning firm, we are really in the business of helping people find peace of mind. Running retirement projections and helping our clients with Social Security decisions are some of the ways we help them find peace of mind. If finances are making you anxious or keeping you up at night, call us at 714-738-0220 or visit our website at www.eclecticassociates.com to schedule a time to meet with me or one of our other fee-only financial advisors to discuss your personal situation.