We Should Probably Take Social Security Early

But I'm not gonna.

I haven't been able to post in awhile, I've been crazy busy across my various constituencies. We have a huge project with my day job and at the fire department we are working on the upcoming wildland fire season which includes spooling up to apply for a grant for a new Type 3 Engine which kind of looks like the truck below. That truck, one of our firefighters and I took a 36 hour trip to Missouri to look at it, it won't quite work but it's a stunning truck in great condition. 

To today's post. Yesterday a client asked me what my opinion was on taking Social Security early. I've been clear forever that I plan to wait until 70, or pretty close as a matter of the circumstance when the time comes, in case I die young, my wife who is 6 years younger would get the biggest payout possible. Other than that reason, the other big reason to wait is you get more in nominal terms every month. I said to my client "although I plan top wait, there are probably more reasons to take early than to wait." 

Arguments to take it early that I've seen made include that you're spending less of "your" money every month, thus letting your investment accounts get larger. There's no guarantee that you'll live past the point of breaking even. By breaking even I mean that if you wait until 70 and then die at 71, you'd have been worse off because you went all those years not collecting, so "they," the government, won. If you wait until 70 and die at 100 then you won, you end up with more money in the long run. The breakeven is around 78. 

If you don't know the math, every year that you wait, you're payout goes up by 8%. The payout at 70 is 76% greater than at 62. In the context of taking it early, I'm not sure 62, the earliest, is ideal but if you want to take it early, then you need to do some spreadsheet work to figure out what is optimal.

It doesn't make sense to take it early if you haven't retired from your career job because the payment will be reduced, maybe down to nothing depending on how much you make. You get it in the end but then, you might as well wait. 

If your full retirement age is 67 and you take it at 67 but you're still working then 85% of your payout is taxable as opposed to 50%....sort of. The 85% kicks in when a couple on Social Security makes $44,000+. Instead of paying extra tax, if you love your work at 67 and it pays well, you might as well wait. There's no advantage to waiting past 70. At that point you're giving money away, more precisely, you're giving money to the government. 

I think more people are interested in retiring as early as possible than people who want to keep working. Is that right? The reasons, related to successful aging, to keep working are many. Challenged mentally, having a purpose, having more optionality with what you've accumulated in your investment accounts, having meaningful interaction with other people, having the opportunity to keep learning (depending on what you do) and there must be others. 

Almost all of those things can be found elsewhere like very actively volunteering, monetizing a hobby or finding a second act career that pays much less but that you love. If you've been making $100,000 but can make it work with some sort of part time gig that pays $15,000 that you love, then taking Social Security makes a lot of sense. It may or may not be ideal relative to your specific situation but generically it certainly can make sense. 

Once you start taking it, if you take it early, you're not stuck. You can suspend it up to age 70 if after not working or making less money you get another high income job, you can suspend it and it will continue to accrue higher at that 8% annual rate. There is also a circumstance where you can pay back what you've taken to get a higher payout later. I've never heard of anyone doing that and it doesn't make a lick of sense to me why someone would do that. 

The most important planning tool is to figure out your priorities. Loving my job makes it much easier for my reason to want to wait. No one else should care about my priority but the utility is figuring out what matters to you. You want to retire early and draw it at 62, go for it...if you can swing it. If you don't love your work but you can't swing it at 62, then maybe 64 would work and in the mean time your payout would go up 16% plus a little more for the cost of living adjustment (COLA) and you might have been able to save more money in those two years.