When to collect Social Security: Not a one-size-fits-all solution

As posted in the Star Advertiser January 9, 2018

What’s your magic number? In this case, we’re referring to your retirement age, when you leave the workforce to enjoy your golden years. According to Smart Asset, the average retirement age in Hawaii last year was 64, just a year older than the national average.

The Social Security Administration (SSA) has its own magic number that defines when beneficiaries are entitled to full retirement benefits. Full retirement age is generally between 66 and 67, depending on your year of birth.

While retirees can start collecting benefits as early as 62, those monthly checks will be permanently reduced. You’ll receive 25 to 30 percent less in your bank account per month than if you started collecting at full retirement age.

On the other hand, if you delay collecting benefits, you’ll receive an 8 percent increase every year past your full retirement age until age 70. If your full retirement age is 66, and you start receiving benefits at 70, you’ll collect 32 percent more in benefits every month.

So, what’s a retiree to do? It may seem beneficial to wait until you’re 70 to claim a larger check, but whether or not that strategy will pay off depends on your individual situation. When it comes to deciding your magic number, consider these factors first.

Do you need the money now?

According to the SSA, 72 percent of Americans receive their Social Security benefits early. Layoffs, health issues, family obligations or other unforeseen circumstances force people to retire earlier than anticipated, and their retirement fund may not produce enough income to live off of. That’s where Social Security comes in to provide much-needed cash on hand.

If you have enough income from other sources such as pensions or retirement plans, it’s best to wait until you reach your full retirement age to collect benefits. Building a robust retirement savings in your prime earning years will provide you with the flexibility to delay your benefits.

What’s your life expectancy?

Most people don’t want to consider whether they’ll outlive the average life span, but it’s an important factor in deciding when to start collecting benefits. Social Security is designed so that those with an average life expectancy will receive roughly the same amount in lifetime benefits, whether they choose to start receiving benefits earlier or later. However, those with longer lifespans will receive more money over their lifetime if they wait to claim until age 70.

If your relatives all lived into their 90s and you’re in great health, delaying your benefits may pay off in the long run. If you have medical conditions that could shorten your life, taking your benefits sooner makes more sense.

Do you have other sources of income?

Sometimes, retirement happens in stages. Many people retire from their day job but take on part-time work or consulting gigs.

If you’re claiming benefits while earning an income between $25,000 and $34,000, you may have to pay federal income taxes on up to 50 percent of your Social Security benefits. If you make more than $34,000 in a year, up to 85 percent of those benefits may be taxable.

Remember that all taxable income, including wages, self-employment, interest and dividends, counts toward this number. If you’re earning substantial income, it’s best to delay your benefits.

Work with your financial advisor to determine your magic number for collecting Social Security benefits. Your advisor can look at your full retirement picture (savings, investments, pensions and other income) and help you calculate whether you’ll need Social Security to supplement your income early on, or whether it makes financial sense to wait.

*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. The credit union has contracted with CFS to make non-deposit investment products and services available to credit union members. CFS does not provide tax advice. For specific tax advice, please consult a qualified tax professional.