10/20/2024
When it comes to helping clients navigate retirement planning, one of the many concerns that often arises is Social Security (SS) and when to start taking it. While the answer to this question won't be the same for everyone, and you should consult with a fiduciary like myself, several factors will play a significant role in most people's situations.
First and foremost, are you retired or planning to retire when SS starts? If you draw from Social Security while continuing to work, you may be subject to penalties on your payments if you earn more than $22,320 in 2024 before reaching full retirement age, or $59,520 in your transitional year. If you are penalized, it will be to the tune of a tidy 50%—that is, $1 for every $2 earned over the limit.
Your age is another important consideration. While you can begin drawing benefits at age 62, your benefit amount will be lower than it could be at full retirement age, or even higher if you choose to delay beyond that. If you are still working and don't need the money, it may be worth delaying your payments, especially if Social Security will be your sole or primary source of income in retirement.
A third consideration, and one that is near and dear to my heart, is the purchasing power of the dollar over time and its relation to Social Security's cost-of-living adjustments. I have talked to many people over the last few years, and something I have heard repeatedly is that individuals can't afford to maintain the same lifestyle they used to, especially if SS payments are their sole source of income. While Social Security payments can be useful, they haven’t seemed to keep pace with the increasing costs of everyday life. We spend our entire lives paying into this system, yet we don’t get to take it with us.
Delaying payments can result in a higher benefit down the line, but it costs us potentially years of payments we could have received. The modest increase in payment from not drawing can take years—even into your eighties—to come out ahead. Today, the dollar likely has the most purchasing power it will ever have, and you are probably the healthiest you will be in retirement today. If you are considering retirement, it could be worth consulting with a fiduciary about taking payments early to maximize your benefits while you are still young enough to enjoy them.
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