One of the most polarizing topics we discuss with clients is "When should I start collecting Social Security". It is also one of the most difficult questions for us to answer as an Advisor because the factors that weigh in the decision are very personal in nature and there is one very large variable we simply do not have the answer to: When will I die?
When it comes to college planning and retirement planning we can project our "flip the switch date" on when money will start coming out of the accounts instead of going in with some degree of certainty. However, in regards to collecting Social Security we simply do not know the answer to the most important variable? If we knew the answer to that question it would be easier to devise a collection strategy that would provide the greatest value but without that information we must come up with other methods to help make a wise decision.
Since most people do not know when they are going to pass away, there are things we can do to help us decide when it is best to collect. When I am unsure of the best way to make an A/B decision I go back to something my parents taught me when I was very young. I take out a blank piece of paper, draw a "T" in the middle and start writing down items on one side or the other and then simply select which side looks more appealing. Try this: on the left write "collect early" and the other side write "wait to collect".
Here are 17 items to write on your T-chart when evaluating your own Social Security collection strategy. (in no particular order)
- Your health
- Your spouses health (if married)
- Parent ages at death
- Married or single
- If married, what is the age gap?
- Current income needs
- Expected future income needs
- Current employment (earning too much before full retirement age can impact benefits)
- Feelings on Social Security solvency
- Dollar value of benefit increase by waiting
- Availability of other assets to cover income needs
- Ability to generate a return on Social Security benefits by collecting early
- Do you have 35 years of Social Security covered employment?
- Retirement income structure: how much of your retirement income is based upon sustainable sources?
- Expected future rate of inflation
- Your spouses wishes/input on when to collect
Which side looks more appealing to you? Use this as a starting point in your decisions making process. Sure, there are many online calculators that can help analyze collection strategies but most inputs are based upon "what-if" scenarios. What's nice about the T-chart is you can use it to determine which factors are most important to you and how those weigh in the decision.
If you do not like your house or new car you can sell the item (sometimes with a small financial penalty). With Social Security, it's often difficult if not impossible to change your decision once it has been made. The finality of the decision makes it much more difficult for some folks. We often rationalize the decision with irrational thoughts such as:
- The government is going to run out of money so I am going to collect mine as soon as I can!
- I'm going to die young so I better start pulling Social Security.
- If I wait until 70 I'm going to collect a lot more money since I'll live to a very old age.
Unfortunately no one really knows how things will play out 5 - 10+ years into the future. We have to weigh the factors that are most important to us and then use those feelings to select a collection strategy that works best in our own unique situation. If you are having trouble with the process consider using the T-chart to help in your analysis.
If you have questions about your collection strategy or you would like assistance analyzing what might work best in your situation please contact me. I've worked through many of these scenarios with clients and would enjoy going through your analysis as well.
Spencer Corzine, has been helping clients understand their investments and reach their investing goals for over 18 years. He is a Certified Financial Planner (CFP®), a member of the Paladin Registry and resides in Austin, Texas with his wife and 5 children.
Serving clients in upstate New York, the Austin Texas area and over 20 other states.
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