Social Security: When Age Is More Than A Number

March 01, 2018

If you’re approaching age 62 and wonder about the “right” time to start collecting Social Security, you’re probably not alone. And in my experience, there are a whopping total of two ideal windows for this momentous occasion based solely upon one factor: your current financial circumstances.

But before we get to that, let me just say that I realize it might seem controversial for me to suggest this, but I believe that it’s time that we start examining Social Security like any other investment vehicle. So, if you were looking at potentially investing in oil or technology, or considering buying up bonds, the decision to strike relies upon assessment and timing.

For Social Security, first and foremost, it’s important for us to consider how likely the future revenue streams will be. Similarly, I advise taking a look at the whole picture and pondering what might happen to the program under unforeseen yet highly possible factors such as a new Congress. You can’t tell exactly what will happen and when, but history has given us some points to ponder.

Social Security as it’s known in its current state has changed significantly over time.

In its golden days, it wasn’t taxed at all, but in the late 80s, higher income recipients saw half of their benefits taxed. A few years later, this demographic was taxed by up to 85 percent. As the program continues to become more strapped, we hear murmurs that there could eventually be across-the-board cuts for everyone.

For example, consider this recent conversation I had with a caller to our radio show. The caller was in her mid-60s and not working. She received roughly $20,000 per year from self-employment funds she acquired through a family business. Her husband was two years younger and worked full time, drawing an income of $340,000 annually. Together, they also received about $22,000 per year from property rentals and they had saved a decent amount for retirement.

We recommended that they both draw Social Security as soon as they could. For her, it is ASAP and for him, it is around age 66 or so, as he winds down his full-time employment. Our reasoning for this being that the Social Security program could potentially look over their money one day. Seeing that they have done well for themselves and have substantial and sufficient funds, the program could then decide to give them less in Social Security.

[Want to learn more about Social Security? Attend one of our Social Security Workshops.]

Meanwhile, there are a few schools of thought about when and how Social Security will “run out.” Put simply, depending on what you read, it’s predicted that in 2030 or 2032, the government will not be collecting enough in revenues to be able to pay out the benefits. For those retiring between now and then, knowing when and how to act can make a huge difference.

The gold standard is that age 70 is the ideal year to start collecting for everyone, but I respectfully disagree, just not entirely.

In this first scenario, I concur with the age 70 recommendation. Let’s say the recipient hasn’t saved up as much for their retirement and expect Social Security to be a large part of their income. If this is their reality, it pays to wait as long as they can. Ideally, it’s advisable to wait until their 70th birthday, because the longer they wait, the higher their payout amount will be. At age 70, they are eligible for the maximum amount allowed, and they won’t be leaving any money on the table.

A recipient who waits until age 70, will receive 8% per year over and above the total they would at 66. So, someone who receives $1,000 a month at age 66 can expect an extra $320 per month if they wait until age 70. But, it’s important to note that the extra benefit isn’t compounded yearly.

On the flipside, where I disagree, consider someone at age 62 who is not working and has ample retirement savings. For them, the time to collect is ASAP. This may seem insanely counterintuitive but stay with me. A primary concern of mine is that there could be some means testing down the road that will impact the program. Depending on how the means testing goes, higher-income workers or retirees could see yet another reduction in their benefits.

As with all things, there are exceptions and considerations to make.

For someone who doesn’t have a long life expectancy, regardless of their age and circumstances, it’s better to file sooner. And, if one spouse is significantly older than the other, sometimes it’s advisable to have one spouse collect the benefit. Currently, for anyone born on or before January 1^st, 1954, it is still completely legal and possible to receive some benefits now and accrue extra income down the road. One way is to claim what is called the spousal benefit. Let’s say the full retirement age wife claims Social Security, while the full retirement age husband only claims the spousal benefit on his wife’s Social Security. After that, the husband can make his own claim at age 70 and receive the benefit of the growth that has accrued. (*For people born after January 1^st, 1954, recent changes to our Social Security laws prohibit this filing option.)

Moreover, health also plays a huge part in making this decision. Medicare Part B costs the typical retiree about $100 a month, but a higher income retiree can wind up paying up to four times that amount, resulting in yet another benefit reduction.

Of course, it goes without saying that receiving something is better than nothing. But given the uncertainty, and potential means testing down the road, you’ll thank yourself later for taking proactive steps now when it comes to your Social Security. This will ensure you can receive the sensible, maximum amount that you can…at least for the time being.

Advisory services offered through Allworth Financial, a Registered Investment Advisor | Disclosures | Privacy Policy

Securities offered through AW Securities, a Registered Broker/Dealer, member FINRA/SIPC. Check the background of this firm on FINRA's BrokerCheck.

HMRN Insurance Agency, LLC license #0D34087

¹Barron’s 2024 Top 100 RIA Firms. Barron's© magazine is a trademark of Dow Jones L.P. The ranking of independent advisory companies is based on assets managed by the firms, growth, technology spending, succession planning, and other metrics.

² Retention Rate Source: Allworth Internal Data, FY 2022

³ The NBRI Circle of Excellence Award is bestowed upon NBRI clients meeting one or both of the following criteria: Total Company score at or above the 75th percentile of the NBRI ClearPath Benchmarking Database and/or improvement of five (5) or more benchmarking percentiles in Total Company score over the previous survey.

⁴ As of 7/1/2024, Allworth Financial, an SEC registered investment adviser and AW Securities, a registered broker/dealer have approximately $22.5 billion in total assets under management and administration.

⁵ InvestmentNews 2020 and 2021 Best Places to Work for Financial Advisers. The ranking reflects survey responses and scores completed by both employers and employees. Employers report their organization’s workplace policies, practices, and demographics. Employees complete a survey designed to measure the employee experience.

⁶ 2021 Value of an Advisor Study / Russel Investments

⁷ Ranked 9th Top Wealth Managers By Growth in Assets in the U.S. from RIA Channel, 2022. RIA Database and RIA Channel are registered trademarks owned by Labworks, LLC.

⁸USA Today Best Financial Advisory Firms 2024. The ranking is based on the growth of the companies’ assets under management (AUM) over the short and long term and the number of recommendations they received from clients and peers.

⁹NBRI Best in Class Ethics 2023. The Best in Class level is bestowed upon clients performing at or above 90 percentile of the NBRI ClearPath Benchmarking Database.

^✢ Scott Hanson, Investment Advisor 2005, 25 most influential people in the financial services industry. The ranking reflects 25 people who Investment Advisor magazine believes have had or will have the greatest influence on the financial services industry.

^✼Pat McClain, InvestmentNews 2014, Invest in Others Community Service Award, presented to an advisor who has made an outstanding impact on a community through managerial contributions to a non-profit organization.

^†Financial Times, FT 300 Top Registered Investment Advisers, June 2019. The ranking reflects six areas of consideration including the company's years in existence, industry certifications of key employees, AUM, asset growth, SEC compliance record and online accessibility and calculates a numeric score for each company.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.