- Learn what factors should be taken into account when deciding when to withdraw social security retirement benefits
- When is it a good idea to wait for the FRA or age 70 to claim social security benefits?
- Other points to consider before deciding to withdraw social security at age 62.
Deciding when to begin the disbursement of social security benefits can one of the more important decisions to make when it comes to retirement planning, especially for federal employees. There are several nuanced advantages and hindrances involved for each age at which someone begins to withdraw their social security retirement benefits. The earlier the payments start, the lower the monthly amount, but because the benefits last until death, a lower amount begins sooner might be the better option for some individuals.
A good practice for making one’s decision is to take the following three factors into account: cash flow needs, the quality of one’s health, and the social security recipient’s life expectancy. If there is any anticipation of possibly experiencing a more restrictive cash flow in retirement, especially during the first few months after retiring from federal service, then taking benefits early (as in, between age 62 and one’s full retirement age, or FRA) could make the most sense depending on an individual’s circumstances. Taking social security income often makes more sense than taking out a personal loan or withdrawing from retirement savings (like the TSP) that was designated for later dates.
Learn more about Social Security retirement benefits for federal employees at our next no-cost Social Security Webinar -
If cash flow in retirement is at a sufficient level to live comfortably without social security benefits, then waiting for the unreduced amount at the FRA or even the boosted benefit amount at age 70, makes a fair amount of sense if health and life expectancy are not an issue.
Breaking Even
Health and longevity play crucial roles when someone is making up their mind about when to claim social security. Many financial professionals have written about at what age people reach a “break even” point when it comes to their lengthy investment in the federal program. The conclusion ultimately comes down to when the social security recipient is expected to pass away. Waiting until 70 to claim retirement benefits seems smart because of the 8% annual increase, but if someone waits until 70 to withdraw their benefits and dies the following year at 71, they would’ve received roughly 12 monthly payments. Had they started taking the income at 62, the difference in the total amounts received is significant.
A $1406 monthly benefit (based the 2016 average annual amount of $16,872) at age 62 would equate to over $165,000 received by age 71 ($16,872 x 10 years). But a boosted monthly amount of $2320 times twelve equals just $27,840 received at age 71. So as you can see, taking the higher benefit amount only pays off if the recipient of the benefits lives long enough to recoup the money they decided to forgo in their sixties - which in this example is around $140,000! The $2320 benefit amount only make sense of our hypothetical retiree here lives to approximately age 85 or older.
Other Factors to Consider
Deciding to continue working or not after the age of 62 (but before one’s FRA) can cause a reduction of social security benefits due to the earnings test, which may also incur unwanted tax consequences depending on how high your earned income is for a given tax year. Upon attaining a person’s FRA, the earnings test is not an issue.
Other factors to think about when it comes to social security benefits include marital status and for federal employees specifically, the special retirement supplement, the government pension offset, and the windfall elimination provision.
What more help deciding when to claim social security retirement benefits? Check out this article from the FEDZONE and listen to this FedLife Podcast episode.
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Until Next Time,
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**Written by Benjamin Derge, Financial Planner, ChFEBC℠ The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Benjamin Derge and not necessarily those of RJFS or Raymond James. Links are being provided for information purposes only. Expressions of opinion are as of this date and are subject to change without notice. Raymond James is not affiliated with and does not endorse, authorize, or sponsor any of the listed websites or their respective sponsors.
