When to Begin Taking Social Security Benefits

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When should I start drawing my Social Security benefits?

I’m asked this question more often than any other by my clients who are retiring before Social Security’s normal retirement age. They all want to know if they should begin receiving benefits early with a smaller monthly amount, or wait for a larger monthly payment later they may not receive as long. In answering this question for yourself, you should take the following factors into consideration.

Social Security © Gunnar3000_dreamstime_13885400

You could consider drawing Social Security benefits early if:

• The financial challenges facing Social Security in the future, which I discuss in more detail below, are well known. While it’s unlikely changes to benefits would be made to those who are already retired, it could happen — especially to those who have done a good job of preparing for retirement and have adequate retirement income from other sources. You may delay drawing benefits only to find out the amount you were expecting to receive has been changed. In the meantime, you’ll have been using your own savings to live on.

• Social Security is largely based on life expectancy. If your family health history suggests your retirement is likely to be shorter, then it may be wise to start drawing benefits when you can.

• Drawing Social Security early allows you to preserve you own savings longer. You’ll need income from somewhere if you’re retired at age 62. You can keep your own savings invested and growing longer by using your Social Security benefits to meet your living expenses.

You should consider drawing Social Security benefits later if:

• The first consideration you should take into account is whether you’ll be continuing to work and have earned income between age 62 and normal retirement age. Social Security benefits are penalized if you make over a certain amount of income. It wouldn’t be wise to draw reduced benefits only to have them penalized.

• The Social Security administration states if you live to the average life expectancy for your age, you’ll receive about the same amount in lifetime benefits no matter when you start drawing benefits. In general, then, if you come from a family with longer life expectancies, you should come out ahead by delaying your benefits until normal retirement age.

• Your spouse may be eligible for a benefit based on your work record. If you die before your spouse, he or she may be eligible for a survivor benefit based on your work record, particularly if you’ve earned more than your spouse over your lifetime. In this case, you may want to delay starting your benefits in order to provide your spouse with a higher amount.

Buyer’s Remorse on Your Benefits

No matter how much thought and research you put into when to begin drawing your Social Security benefits, there’s always the possibility you’ll have buyer’s remorse after you start. Believe it or not, the Social Security administration permits you to stop drawing your benefits and then restart them later at the higher current rate. But you probably won’t be surprised when I tell you there’s a bit of a catch: you must repay all of the benefits you’ve received to that point. However, you won’t owe any interest, and there will be no adjustment for inflation.

To accomplish this, you must file Social Security Form 521 — Request for Withdrawal of Application. You can download the form at the Social Security website, www.ssa.gov. Social Security will calculate the amount you’ve been paid and request a check from you. Once you’ve paid back the benefits, you can apply again for benefits and start drawing at the higher rate.

If you’ve been paying tax on your benefits all those years, you may even be able to recover the taxes. You’ll need to pick up a copy of the IRS publication 915, which has instructions and worksheets that guide you through the process.

The reasons some people may want to stop and restart their benefits are pretty clear. If you started drawing benefits in your early 60s and are now getting a check for $1,000 per month, you may be able to stop that benefit and restart with $1,500 per month. A little math can help you determine how many years it’ll take to come out ahead. On the other hand, you obviously need to live long enough to come out ahead. If you were to die in an accident the month after you changed over, your heirs would be out all of the benefits you paid back.

I’d recommend you be in good health with a good family history of long life expectancies before I’d consider this strategy. The last point to consider is changes to the Social Security system may reduce your benefits in the future. It seems highly unlikely they’d change benefits for existing retirees but it’s a possibility. We all know Social Security is on shaky financial footing.

Recommendations for When to Begin Taking Social Security Benefits

You may want to consider drawing Social Security benefits early if you believe the financial challenges currently facing the system will adversely affect your benefits; you’re unsure about the length of your life expectancy; or you’d like to preserve your personal retirement savings.

You could consider drawing Social Security benefits later if you’ll be continuing to work and have earned income between age 62 and normal retirement age; you come from a family with longer life expectancies; or you believe your spouse may outlive you and you want to provide him or her with a higher amount of your benefit.

If you start taking your Social Security benefit and later wish you hadn’t, you can stop drawing your benefits and then restart them later at the higher current rate — but you must repay all of the benefits you’ve received to that point.