Posted by Gary Abely , CFP®, AIF®


Let me first admit I have been guilty in the past of providing clients with 5 plus page reports purporting to solve one of the “biggest retirement dilemmas”, when to start claiming Social Security (SS) benefits.  I found the report confusing myself so I sought to make this decision easier for my clients.  I found the decision is as easy as M A T H.

It is important to understand the basics about Social Security.   Your monthly benefit amount is calculated by averaging (adjusted for inflation) your highest 35 years of income.  If you only have thirty years of working years, you will have five zeros averaged in to your calculation.  For each year you take your benefit prior to full retirement age (FRA), your benefit  is reduced by 8% (for example, if FRA is 67 and you start benefits at 65, your benefits will be approximately 16% less than your FRA amount.  For each year you delay your benefits past your full retirement age, your benefit is increased by 8% (for example, if FRA is 67 and you start benefits at 69, your benefits will be approximately 16% higher than your FRA amount.  Whether you take benefits early at 62 or late at 70, your benefits are designed to be the same over your lifetime, thanks to government actuaries.  Therefore, it is actually hard to make a “bad” decision.  No need to worry.

Still, one does have to make the decision.  To make this process easier, think MATH:  Market, Affordability, Taxes and Health.  Health, of course, is the first and easiest factor to weigh.  If a physician has told you your life expectancy is likely to be shorter than normal, claim benefits as early as possible.  Affordability is also easy to weigh.  Can you comfortably afford to delay benefits to later in retirement or do you find yourself struggling to pay bills now?  A quick check on affordability:  Can you live on a 4% withdrawal rate from your savings?  If so, consider deferring your SS benefits to a later time.  If you are still uncertain, consider the impact on your current taxes by claiming SS.  If you and/or your spouse are still working, up to 85% of your SS benefits may be taxable.  Also, if you begin SS benefits prior to FRA, your benefits will be temporarily reduced if your earnings are above certain threshold amounts.  Talk to your tax advisor about the impact on claiming SS so you have all the facts.  Finally, if you are still considering flipping a coin to make this decision, consider where the Market is today.  Are we at a Market valuation such as March 2009 (DOW 7,000 Points) or May 2017 (DOW 21,000 Points)?  In other words, have your equity investments just dropped 50% or have they tripled in value.  In 2009, I recommended clients (after first considering Health, Affordability and Taxes), start SS benefits to allow their investments time to recover (versus selling equity investments half off).  By that same logic, it may now make sense to defer SS benefits and utilize retirement savings while markets are at all time highs and valuations are above historic metrics.  Remember one important thing:  you can’t make a bad decision!  So, make the decision and move on to more important decisions like scheduling time with family and friends and finding great deals on vacations.

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