by John Drohan
11/3/2017

The Social Security choice (final answer, please).

When planning for retirement, there comes the decision that nearly every working American will need to make, “when do I begin collecting my Social Security retirement benefit,” or in the common vernacular, “when should I start collecting Social Security?”  The gravity of the decision as to when to start collecting magnifies because of the finality of it.  That’s right everyone, it’s a one-time, no do-over, end-of-story, red-wire-or-blue-wire, Elvis-has-left-the building decision that you don’t get a second crack at.  Choose wisely because whatever you choose, that’s what you live with…forever.  In an effort to alleviate the angst that comes with having to make this choice, we have, without reservation or hesitation, provided you the absolute correct answer.

(The envelope please)

“Take your Social Security benefit, when you most need it.”

Yep.  The answer is, take it when you MOST need it.  (Wait for applause).

Stop the presses.  Oh my.  So smart.  So insightful.  Thanks guy.  Check please.

Sorry if this seems like the same lame or “canned” answer that you often hear, but it is the absolute right one, and we’ll show you why.  But first, let’s do a quick Social Security crash review.  Making the assumption that everyone somewhat understands what the concept is (a lifetime income stream that a working person qualifies for once they have paid into the Social Security system for a total of 40 quarters), we’ll start with the 3 ages that you need to know about.  First, the “full” Social Security age which is age 66 if you were born before 1960, and age 67 if you were born in 1960 or later.  Second is age 62 which is the earliest you can begin collecting your benefit, however the benefit is reduced by approximately 30% from your full benefit at age 66/67.  Last is age 70 which is the maximum benefit a qualified person can receive, meaning that there is no reason to wait any longer as this will be as good as it gets.

 According to the Social Security Administration (ssa.gov), the Social Security retirement benefit is designed to be a part of one’s overall retirement income, not one’s entire source of income. For many clients, we use it as the cornerstone on which to build someone’s complete retirement plan.

The answer lies in how we define Social Security and understanding the most important factor in retirement, and that is income.  The only difference between working people and retired people is that their income comes from different sources.  When you work, it comes from your job.  When you are retired, and no longer working, it comes from things like pensions, money you’ve saved and, of course, Social Security.  Social Security is not an ASSET as much as it is an INCOME source.  These are 2 very distinctly different things.  Often times people will argue that they “can get more out of Social Security” by taking income early (before age 66/67).  It is true that it will take around 13 years for someone who began collecting at full retirement age to surpass someone who began collecting at age 62.  But unless you actually NEEDED that income at age 62, the 30% increase or higher (if you wait to collect past full retirement age) could be much more valuable to a retiree.  Another factor is the tax on your benefit if you choose to take it early.  You are restricted on how much earned income you can get (income from working).  In 2017 a person can earn only $16,980 before a tax kicks in on their early Social Security benefit.  The benefit is then taxed $1 for every $2 you receive on income you earn over $16,980.  Bottom line is, you really can’t have any substantial earned income while collecting the early benefit.

The decision becomes more clear when you look at it from the perspective of how long you will be earning income.  We will even say this to someone who has reached the full retirement age (66/67).  At this point if you decided to take your retirement benefit you would receive the full benefit.  The question is again, do you need it?  Or perhaps a better question is, “would you need a higher Social Security income at age 70 in the case that you are no longer working?”  It all comes back to income and your ability to generate it.  Older people tend to be more limited on their ability to earn income should they need it.  Would a higher Social Security benefit be better if you had no more earned income?  In many cases, it sure would be.

It is important to understand that there are cases where it makes perfect sense for a person to take their benefit early.  An example could be that they have retired before age 62 due to health reasons.  They have had to rely on their saved assets to generate income and once they reach age 62 they can then alleviate the pressure of having to generate income solely from their assets.  There are other examples too but again it all falls back on the fundamental principal of taking the income when you need it most.

So there you have it, think about when you need the income the most and that is when you make the decision.  Since there are no “do overs” using the “income” guidance will help you sleep soundly with your decision.

John P. Drohan, Jr., Main Effort Financial

770 Washington Street Suite 6 Holliston, MA 01746

p. 508.893.9990

e. jdrohan@maineffort.com

Securities and Investment Advisory Services offered through Sage Point Financial, Inc.  FINRA/SIPC. Main Effort Financial, Inc. is a separate entity from Sage Point Financial, Inc.