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The Social Security Conundrum

December 11, 2023

One of the most common questions I receive when I first start discussing retirement with a client is when should they start collecting social security?  Should I file early?  Is it the obvious choice to work until Full Retirement Age (FRA)?  Do I try find a way to delay until 70 to maximize my benefit?  The truth is, there are a number of factors to consider, and the decision varies by individual.  I’m going to review a couple of the key points and challenges that people face.

But first, be sure to set up your social security account (https://ssa.gov).  They are no longer sending paper statements.  When you establish your account, you will get a full projection of your expected income at various retirement ages.  This information is vital in making some of our retirement decisions.

  • If you decide to file early, make sure you are aware of the income limitation rule. Should you file at any time prior to your full retirement age, the IRS limits what you can earn to $21,240 in 2023 (This is being indexed to $22,320 for 2024).  For every $2 you earn above that threshold, social security will withhold $1 in benefits.  The bottom line is if you file early, don’t cross the income threshold…. or find a job that pays via envelope or brown paper bag (That is not advice)!
  • When you google “when should I file for Social Security” you will see hundreds of articles that make the argument that by waiting until 70, you are maximizing your benefit and will have made more money once you get into your 80’s. Well, that’s pretty simple math, but is it practical?  The current life expectancy rate in the US as of this year is 79.11 (Sorry to all my 90-year-old blog fans out there).  The other component to this question is when do you tend to be most active in retirement?  Does it really pay to wait until 70?  Maybe you have a large enough portfolio that can sustain you until you file at 70.  If you do, that makes this decision much easier.  However, I can tell you that being a personal financial planner for the past 13 years, the majority of my retirees are most active and do most of their travel between 65-80, not 80-95.  So yes, mathematically you may win if you wait until 70…but did you enjoy the money the government takes from our paychecks during our working years?  Maybe you did, but it’s just another issue to think about. 
  • The general rule of thumb for most of us (and each person’s numbers are slightly different) is that you are making money on the government for approximately 11-15 years once you start collecting. For example, if you start collecting at age 62 versus age 67, it will take until around age 75 for the government to start winning again based on you taking the lower monthly amount.  The reason for this is simple.  While waiting until 67 provides a higher income compared to collecting at 62, you still enjoyed 5 years of income by filing early.

The bottom line is every family, every individual is in a different situation.  What I laid out above is simply some things to think about and different situations I have come across.  I’m not advocating that one option is better than another.  At Birds Eye, we analyze every unique client and what decisions work best for them.  We also utilize our retirement planning software that runs 1,000 different market scenarios to help choose a retirement plan that has the least amount of risk with the best potential income.  Please don’t hesitate to reach out with any questions. 

Please feel free to share this with anyone it might help.