Does it make sense to wait to age 70 to sign up for social security?
When to take social security is the question. I’ve read article after article that recommends you wait to get more per year in monthly payments. For those that can afford it, most financial planners recommend that you should wait until age 70 to begin receiving your Social Security benefits. Your monthly payment will be higher, no doubt. So long as you live to your early 80s, those higher monthly payments should make up for the foregone income over the four years from age 66 to 70, or will they?
Based on all of the content published on social security, I’ve even gotten the impression the government wants you to wait and that makes Boss Man Jax suspicious. Should you wait?
It appears many think so, but they might be dead wrong and Boss Man Jax says, let’s investigate social security a bit further.
For example, on Charles Schwab’s website the article, When Should You Take Social Security?, implies (or at least gives the strong impression) waiting is better for most folks. However, the article doesn’t consider the tax implications for wealthier individuals. They do have several caveats in the text, but really don’t address the full picture for many:
You can elect to take benefits as early as age 62 (or earlier if you are a survivor of another Social Security claimant or on disability), or wait until as late as age 70. There’s no “correct” claiming age for everybody. But, if you can afford to wait, starting Social Security later than age 62 can pay off over a long retirement. (SOURCE: Rob Williams, Dec. 16, 2017)
Yes, you will get 8% more per year in monthly payments when you wait and get more money overall if you live a long life (or will you?). However, if you are a higher net worth individual at 62, it might put you in a higher tax bracket when you defer taking social security and access the funds you need to live through your pre-tax savings accounts (IRA, 401k, etc.). The key is you are early in retirement at age 62 and high net-worth individuals – like Boss Man Jax – end up paying significantly more in taxes between the ages of 62 and 66; money which would otherwise grow.
This morning I read, Why Rich People May Want to Take Social Security at 62, By Chris Heerlein (Investment Adviser Representative Reap Financial Group, LLC, Sept. 7, 2018). Chris Heerlein says,
I’m surprised how many high-net-worth individuals and families overlook one of the most important parts of retirement planning: the enormous amount of taxes that they may have to pay on their Social Security benefits.
It is refreshing to see some folks are doing the math before following the herd. Hat’s off to Chris Heerlein for being so financially smart!
Let’s face it. If you are a frequent Boss Man Jax reader (or even a new reader), you’ll be one of those high net-worth individuals, if you aren’t already.
The main take aways today:
- Don’t rely on what everyone else says or does face value; understand your finances and do the math for your specific financial situation
- Tax planning is more important than most people think and not always discussed (even the so called financial planners writing articles everywhere don’t go into it often from what I’ve read)
- As always, educate yourself on financial matters and make getting and staying rich automatic (pay yourself first, invest the money and plan for taxes down the road)
- Plan when and how you’ll access your nest egg before you retire (years, if not decades, before you retire)
When do you plan to collect social security? Let’s us know in the comment section; I’m curious if anyone else with a net-worth over a million has seriously considered taxes before making the decision.
Additional Reading
For those that like to work and don’t have much money saved for retirement, by all means read, Best age for Social Security benefits over at BankRate.com. The following is an excerpt of the article which clearly encourages you to put off taking social security as long as possible. Once again, the article has caveats (not for everyone depending on your financial situation, etc.), and fails to consider taxes in your financial decision making process:
Put it off [taking social security early]
Generally, it’s best to postpone Social Security benefits as long as possible, at least until your full retirement age as determined by the Social Security Administration, or SSA.
Early Social Security can cost you
If your full retirement age is 67, your Social Security benefit is reduced by:
- About 30 percent if you start collecting at 62.
- About 25 percent if you start collecting at 63.
- About 20 percent if you start collecting at 64.
- About 13.3 percent if you start collecting at 65.
- About 6.7 percent if you start collecting at 66.
Source: Social Security Administration
“Social Security is like longevity insurance,” says Brent Neiser, a Certified Financial Planner and director of the National Endowment for Financial Education. “It’s a stream of payments that will not stop throughout your life, so delaying your benefits to keep those payments as large as possible forms a helpful base to your retirement plan.”
In fact, he notes, those who under saved for retirement should use whatever means possible to postpone their Social Security benefits until after their retirement age to help boost future income.
Boss Man Jax: note the assumption is you “under saved” – not us and/or those taking simple steps to become financially independent; those like you (I hope) that will have a higher net-worth when retiring.
“You can use personal savings to help bridge the gap, but ideally you should plan to work a little longer (and delay Social Security),” Neiser says.
Boss Man Jax: Work longer! Who wants to work longer? Even if you do have income after collecting social security, you can reduce your taxable income; consider Traditional IRA, SEP, Solo 401(k), talk to a financial/tax planner. Given we have owned our own company for decades now, entrepreneurs/self-employed, we were eligible for a SEP. We used our SEP for retirement savings until the end of 2017. For 2018, we now have a Solo 401(k) which helps us save more for retirement while reducing our current taxes.
Another benefit of working longer? Medicare. Aging Americans become eligible for federal health insurance coverage at age 65.
Boss Man Jax: Ok, good point here by Neiser. You do need to include health insurance costs when planning your retirement, which can be significant for sure.
Neiser has several good points in the article, especially for those that “under saved” and may need to work longer as a result. Don’t let that person be you!
For additional resources concerning social security, visit our Resources page here and scroll down to the social security section.
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