Roughly 10,000 Baby Boomers will turn 65 today. You’ve paid into Social Security all your life. Now you are getting close to retirement. When should you begin drawing benefits?
There is no right answer for everybody. I tend to look at a number of factors, which I’ll address below. This article is meant to help you take the first steps in deciding on when it is best to begin drawing benefits.

Step 1 – Obtain Your Social Security Statement

Do you remember the annual Social Security earnings statements you used to receive in the mail? Now, only those over age 60 are supposed to receive paper statements. The first step you should take is to set up an account of www.ssa.gov and download your annual Social Security statement.

Here’s why – your Social Security retirement benefit is based on the highest 35 years of earnings. Sometimes the Social Security Administration does not receive the notification of your earnings. If one or more years of earnings are not reflected on the Social Security statement, this will reduce your retirement benefit. It is better to address this problem early rather than doing so when you are applying for benefits.

Thus, periodic review of the Social Security earnings statement will help you receive the maximum benefit you are entitled to.

Step 2 – Review the Options

Your Social Security statement will give you other important information. Full retirement age for the baby boomers is gradually increasing. I was born in 1958. My full retirement age for Social Security purposes is 66 years, 8 months.

This means that if I wait to retire until I’m 66 years, 8 months old, I’ll qualify for my full retirement benefit. The amount of the benefit is listed on the first page of the statement in the upper right hand corner in large letters.

What if I retire early? I can retire as early as age 62, but with a 29% reduction in benefits. That is a significant reduction over a lifetime.

Another thing to consider when taking benefits early is whether you will continue to work. If you do claim Social Security retirement before full retirement age and you continue to work, your Social Security benefits will be reduced by $1 for every $2 you earn above the annual limit until you reach full retirement age. For 2018, the earnings limit is $17,040. The earnings limit is greater and the benefit reduction is less in the year you reach full retirement. Thus, if you are working a full-time job and begin drawing Social Security before full retirement age, you may end up with a very small Social Security check.

What if you want delay benefits beyond full retirement age? Social Security will increase your benefit by approximately 8% for every year you delay claiming benefits up until age 70.

Step 3 – When do I begin drawing benefits?

My answer to this question is that one size does fit all. Everybody is different. In general, there are three categories of people that may want to claim benefits early:

• Those that are retired and don’t need the cash flow that Social Security provides.
• People that are certain they will have a very short lifespan, due to illness or other factors. These cases are rare, but they do exist.
• Individuals that have absolutely no other source of income and no prospects of obtaining a job.

My standard advice to my clients is that if you don’t need the money, it might make sense to draw benefits early. If you need the money, it is best to wait to draw benefits at least until full retirement age. The extra 30% that Social Security pays at full retirement age is significant. Also, waiting to draw to benefits typically also means the individual stays in the workforce. This allows the building up of more money in a 401k or IRA, and increasing the amount of earnings credits paid into the Social Security system.

Sometimes it isn’t all or none. That is, you can always continue to work for a year or two after age 62 and then reevaluate at that time. For example, reconsider when to claim Social Security benefits at age 64. The benefit you will receive will be greater than the one at age 62.

Conclusion

Retirement is a very personal decision. Everybody is different. But starting the conversation now allows an individual or a couple to better plan for a brighter future.

© Daniel J. Domancich, CPA, CFP®