With the baby boomers, which I am one, entering into retirement, there have been more and more articles written about Social Security. In the old days you retired and then you began to collect Social Security. It was relatively easy and there wasn’t much to really think about. Fast forward to today and like everything else in our world, nothing is easy. When it comes to Social Security you have to have a strategy for when you begin to take benefits. Particularly for those of you who are married and both spouses have worked, there are different options available and it is important that you do some advance planning to help you select the right option.
I have read many articles recently on Social Security and as far as I’m concerned, many of them aren’t worth the paper they’re written on. Many of these articles portray the decision as easy, but it is anything but. I wish there was one strategy that was good for everyone- it would make my job easier. Unfortunately, as we all know, life doesn’t work that way. Like most things in the financial world, the decision depends upon your individual situation
When making a decision regarding Social Security, here are some factors that you should consider (not in any particular order):
1. Life expectancy – How long you expect to live is an important factor. For those with health issues or family history of shorter than normal life expectancy, all things being equal, it leans toward taking benefits sooner than later. On the other hand, for someone who expects their life expectancy to be longer than normal, it leans towards delaying Social Security until you get your full benefits. Remember, taking Social Security early reduces your benefit; but, it also means that you’ll receive monthly checks for a longer period of time.
2. Your cash flow – Obviously, when you retire it’s important to cover your day-to-day living expenses. You need to consider what your expenses are and what is coming in on a regular basis. If your living expenses are covered by pension and other sources then it leans towards delaying Social Security. However, don’t forget about quality of life. If you need the income, then it leans towards taking your benefits earlier. But always keep in mind that in retirement you need a rising income.
3. Whether you’re still working – Remember, if for example you take Social Security at 62 and continue to work, for every two dollars of income above $15,480, you will lose one dollar in benefits. If you are continuing to work, unless you need the money, it pays to delay your benefits.
4. Your spouse – Knowing what benefits your spouse is entitled to is important in making the right decision. For example, if you’re the high-earning spouse, the amount of survivor benefits your spouse receives could have a major impact on what you decide. It is important that married couples coordinate their decision.
The bottom line, deciding when you take Social Security is an important financial decision and it’s something that can’t be looked at in a vacuum; but instead you must determine how it fits in with your entire financial picture. Remember, there’s not one right answer; rather, there’s a right answer for you and your individual situation.