What is the optimal age to begin collecting Social Security benefits? As stated in Part 1 of this series, lack of other sources of retirement income will generally dictate commencement of benefits sooner than later. There is one other situation where this is also true – health. Specifically, poor current health that is expected to result in less than normal life expectancy would be an important, if not the most important, factor in determining when to flip the Social Security switch. Like the other three factors discussed in the three previous blog posts, it should be considered individually and collectively when making this important decision.
One of the factors that was discussed in Part 4 – affect on amount of spouse’s Social Security benefit – needs to be examined closely if you’re married and health is a concern. As stated in Part 4, as a spouse, you can either claim a benefit based on your earnings record, or, alternatively, you can collect a spousal benefit equal to 50% of your spouse’s Social Security benefit. If your spouse’s current or projected benefit is expected to exceed 50% of your benefit, this won’t be an issue. If, on the other hand, the amount of your spouse’s benefit is dependent on the amount of your benefit, then additional analysis is warranted before commencement of your Social Security benefit.
Assuming that either you aren’t married or the amount of your Social Security benefit either won’t, or isn’t expected to, impact your spouse’s benefit, then mathematics will generally dictate your Social Security benefit start date. Let’s revisit an example from part 2 of this series to illustrate this. Let’s suppose you’re eligible to start receiving a monthly benefit of $2,000 beginning at full retirement age (“FRA”) 66, you’re in poor health, and you would like to begin collecting your benefit, which will be $1,500, at age 62.
Per Exhibit 1, assuming you start receiving your benefit at age 62, while your annual benefit of $18,000 will be $6,000 less than your annual benefit of $24,000 if you instead wait until age 66, your cumulative benefits will be greater until age 77 at which time cumulative benefits of $288,000 would be identical. In this example, if you’re 62 and you have a medical condition such that you don’t expect to live longer than 15 years, income tax considerations aside (See Part 3 of this series), it would generally behoove you to begin collecting your Social Security benefits at 62.
On the other hand, assuming your health issues aren’t as serious and there’s a chance that you will survive your life expectancy, commencement of benefits at FRA instead of age 62 should be considered. This may not be practical, however, if you need the funds to pay for uninsured health care needs.
Lack of other sources of income or poor current health that is expected to result in less than normal life expectancy are two reasons for beginning receipt of Social Security benefits at age 62 vs. waiting until FRA. As previously mentioned, even the latter reason needs to be further analyzed if you’re married and the amount of your spouse’s benefit is dependent on your benefit. Aside from these two situations, temptation, i.e., the ability to collect monthly benefits at age 62, shouldn’t be the reason for doing so. Instead, other factors, discussed in parts 2, 3, and 4 of this series, should be considered and analyzed before flipping the Social Security switch to determine what’s best for you.
Robert Klein, CPA, PFS, CFP®, RICP®, CLTC® is the founder and president of Retirement Income Center in Newport Beach, California. Bob is also the sole proprietor of Robert Klein, CPA. Bob applies his unique background, experience, expertise, and specialization in tax-sensitive retirement income planning strategies to optimize the longevity of his clients’ after-tax retirement income and assets. He does this as an independent financial advisor using customized holistic planning solutions based on each client’s needs and personality.