Navigating Social Security isn’t just a question of picking a date – it’s about understanding how this key income stream fits into your overall retirement strategy. While it might seem like a straightforward income stream, critical nuances can significantly impact your long-term financial picture.
You can begin collecting Social Security as early as age 62 or wait until as late as age 70. What’s the difference? Growth. From 62 to full retirement age (usually 67), your benefit grows by 6% annually. From 67 to 70, it grows by 8% each year. That’s a meaningful increase if you have the flexibility to wait.
But the decision isn’t purely mathematical. Taxes also come into play. Up to 85% of your benefit can be taxable – not at an 85% rate, but up to 85% of the benefit may count as taxable income, depending on your total income from other sources.
So, when should you take it?
It depends on several factors:
- Your standard of living – Can you maintain your lifestyle without taking Social Security early?
- Your health – If life expectancy is a concern, it may make sense to claim earlier.
- Your other assets – If you have IRA money specifically, delaying Social Security while drawing from those accounts could reduce taxes down the road.
For example, drawing from a traditional IRA in a lower tax bracket can allow your Social Security to grow while also reducing your future required minimum distributions, which begin at age 73 or 75, if you were born on or after January 1, 1960. Depending on taxable income, Roth conversions are a viable strategy, and delaying Social Security allows you to get more money out in your marginal tax bracket.
Spousal benefits also add a layer of strategy. If one spouse has a significantly higher benefit, it may be smart for that spouse to delay benefits until 70 to maximize the amount, because the surviving spouse will receive the higher of the two benefits after one passes away. In some cases, starting the lower benefit early while delaying the higher one can provide the right balance.
Key points to keep in mind when evaluating Social Security options:
- Delaying benefits increases the monthly amount significantly – up to 8% per year after full retirement age.
- Up to 85% of your benefit can be taxable depending on other income.
- IRA withdrawals and Roth conversions in early retirement years can lower future taxes.
- The higher spousal benefit can become the survivor benefit – plan accordingly.
There’s no universal answer for when to begin Social Security. Online articles and blanket advice often miss the full picture. Your decision should be based on your standard of living, life expectancy, and overall asset strategy. The wrong choice could cost you tens of thousands over your lifetime, and that’s not a decision to make in a silo.
If you're ready for a custom review of your situation, schedule a complimentary Next Steps meeting with one of our advisors. We’ll walk through your full financial picture, discuss your timing options, and help create a written plan so you know exactly what to expect and when.
Financial Enhancement Group is an SEC Registered Investment Advisor.
