Finance & Enjoyment Blog

Should I start my Social Security Early?


A good friend of mine just turned 62. He announced to me he was going to start his Social Security. I have analyzed this several times and knew this would not be the best economic answer. The reduction they impose for starting early is significant. So I asked him to wait, and send me the amounts he would receive now, and the amounts he would receive if he waited until his normal retirement age at 66. He has a pension from his career employer that is decent, so I knew he would have respectable income without Social Security. I got the numbers and ran the analysis. As I suspected, the break-even point, incorporating the time value of money, was about 10 years. In other words, after 10 years the greater amount he would receive each month if he waited would overcome the value of the first 4 years of payments. So if he lived past age 72, which he almost certainly will, his situation would be better the rest of his life by waiting.
He told me he understood that, but that was not the larger issue. The next ten years of his life are the time when he and his wife will be able to do things they want, like travel, and spoil their grandkids, support their favorite charities, afford a nice dinner out with family or friends once in a while etc. The Social Security income will give them the cushion they need to feel comfortable doing those things. After age 70 the ability to do those things becomes less certain.
The economic answer to this question is almost always to wait. You will be better off in the long run if you outlive the break-even period. But the economic answer is not always the best answer, as my friend so correctly determined. Don’t let income tax consequences or economics be the overriding factors in decisions like this. While they are very important, quality of life, family and friends are what matter most!

Posted in Your Financial House » Time Management and Organization » Retirement and Exit Strategies » Rules and Regulations »

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