When Should I Start Taking Social Security?

It’s not so simple anymore

by Herb Daroff

Mr. Daroff is affiliated with Baystate Financial Planning, Boston, and is a contributing editior to this magazine. Connect with him by email at [email protected] or visit his site at www.baystatefinancialplanning.com
  • Do you want to maximize your annual income? OR
  • Do you want to maximize your total lifetime income?

First, let’s examine these questions if you are single (not married and no current dependents).  The highest annual income is achieved by delaying your start date as long as possible (until you need the income).  However, the highest total lifetime income depends on how long you will live after starting to receive Social Security benefits.  In 2013, the maximum Social Security benefit is $2,533/month at full retirement age 66 for someone who was born between 1943 and 1954.

Age at Start Date    Percentage of Full Benefit    Monthly Benefit    Annual Benefit

62                                75.00%                              $1,900                   $22,797
63                                80.00%                              $2,026                   $24,317
64                                86.67%                              $2,195                   $26,343
65                                93.33%                              $2,364                   $28,370
66                                100.00%                            $2,533                   $30,396
67                                108.00%                            $2,736                   $32,828
68                                 116.00%                            $2,938                  $35,259
69                                124.00%                            $3,141                   $37,691
70                                132.00%                            $3,344                   $40,123

However, if you die too soon, you may have been better off starting earlier or later.  For example, if you died at age 80, the optimal starting age would be 67.

Age at Start Date    Percentage of Full Benefit    Annual Benefit    Dying at Age 80
62                               75.00%                                $22,797.00         $410,346
63                               80.00%                                $24,316.80         $413,386
64                               86.67%                                $26,343.18         $421,491
65                               93.33%                                $28,369.60         $425,544
66                               100.00%                              $30,396.00         $425,544
67                               108.00%                              $32,827.68          $426,760
68                                116.00%                              $35,259.36         $423,112
69                                124.00%                             $37,691.04          $414,601
70                                132.00%                              $40,122.72          $401,227

But, of course, we don’t know when we will die.  If you died at 75, then you should have started receiving Social Security benefits at age 62.

Age at Start Date    Percentage of Full Benefit    Annual Benefit    Dying at Age 75

62                                 75.00%                                $22,797.00          $296,361
63                                 80.00%                                $24,316.80          $291,802
64                                 86.67%                                $26,343.18          $289,775
65                                 93.33%                                $28,369.60          $283,696
66                                100.00%                                $30,396.00         $273,564
67                                108.00%                                $32,827.68          $262,621
68                                116.00%                                $35,259.36          $246,816
69                                124.00%                                $37,691.04          $226,146
70                                132.00%                                $40,122.72          $200,614

the answer to “When should I start taking Social Security” depends on many variables with no clear answer unless you know how long you and your spouse will live and what interest rates and investment returns will be for the rest of your lives

If you knew that you would live to age 85, you maximize your total lifetime benefits by starting at age 69 (not 70).

Age at Start Date    Percentage of Full Benefit    Annual Benefit    Dying at Age 85
62                                  75.00%                                 $22,797.00          $524,331
63                                  80.00%                                  $24,316.80         $534,970
64                                  86.67%                                  $26,343.18         $553,207
65                                  93.33%                                  $28,369.60          $567,392
66                                  100.00%                                $30,396.00          $577,524
67                                  108.00%                                $32,827.68          $590,898
68                                  116.00%                                $35,259.36          $599,409
69                                  124.00%                                $37,691.04          $603,057
70                                   132.00%                               $40,122.72          $601,841

Then, of course, there is the “use of money” calculation which will vary every year based on interest rates and investment yields (i.e., opportunity cost). Second, let’s examine if you are married.  Then, your spouse’s Social Security is the greater of  50% of yours or the spouse’s own Social Security benefit.  Delaying your benefit start date could increase the total lifetime benefit payable to both you and your spouse.

As you can readily see, the answer to “When should I start taking Social Security” depends on many variables with no clear answer unless you know how long you and your spouse will live and what interest rates and investment returns will be for the rest of your lives.

Is Social Security your only source for RELIABLE income during retirement?  A generation ago, many retirees had pension plans as additional reliable income.  Today, annuity strategies provide a “private pension” to supplement existing pensions or to replace pension income if not provided by your employer.
Life insurance cash value can also provide a source for reliable income (like a private Roth IRA).  Life insurance death benefits provide income replacement for a surviving spouse, if you are the insured.  Insuring the life of a parent and/or grandparent can provide an additional source of retirement income.  Remember, a financial plan without life insurance is just an investment portfolio that dies with you. v
Mr. Daroff is affiliated with Baystate Financial Planning, Boston, and is a contributing editior to this magazine. Connect with him by email at [email protected] or visit his site at www.baystatefinancialplanning.com
Pursuant to IRS Circular 230, Baystate Financial is providing you with the following notification:  The information contained in this article is not intended to (and cannot) be used by anyone to avoid IRS penalties. This article supports the promotion and marketing of life insurance. You should seek advice based on your particular circumstances from an independent tax advisor.
This article is based on income tax and transfer tax laws in effect as of January 2013.  Future changes in income taxes, transfer tax exemption amounts and transfer tax rates may impact the appropriateness of any income tax and/or transfer tax planning strategy or product sale.  Clients need to understand that tax law is always subject to interpretation and legislative change.  Baystate Financial and its affiliates do not provide tax advice and therefore clients must speak with their qualified legal and tax counsel regarding their current estate plan and what planning options are available and appropriate.
Neither MetLife nor any of its affiliates, employees, or representatives provide tax or legal advice. Please consult your tax advisor or attorney for such guidance.
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