I am a single male who has been retired for seven years. I have luckily made some very good investing decisions. My house and two cars are paid for, and my retirement accounts are 70% equities and 30% cash and bonds and are currently worth $2.3 million. I have no dependents and I live in a very inexpensive state. My annual income — taken from investments and a $10,000-a-year part-time job that I love — provides me $85,000 a year, which allows me to live and travel very comfortably.
Now that I am old enough to start taking Social Security, I have been reading as much as I can about the pros and cons of taking it early. If I take it now, my monthly distribution will be $2,500, but waiting until age 67, it will be $3,500.
I had this discussion with my investment adviser and we talked about how Social Security effectively pays you 8% per year to delay disbursements. He pointed out that I have made an average of 9% per year over the last 10 years in my investment portfolio, and taking it now would make sense. My spending wouldn’t necessarily increase, but I would end up taking less out of my retirement funds.
What do you think of this strategy?
Blessed in Wisconsin
Related: I’m 48 with $223,000 saved for retirement. I want to contribute an extra 1% every year. Will that have any meaningful impact?
There are many pros and cons to taking Social Security early, but how heavily they should be weighted depends on personal circumstances. Some people really have no choice because they need income in retirement as soon as possible. For those who think they will live a long while after age 70, and have sufficient income, an early claiming strategy is less relevant.
You have assets on your side, so now it’s really a matter of preference. You can follow your adviser’s suggestion, where you compare the 8% rate for delaying benefits with what you get in the market — that’s one way of looking at it. But as I’m sure you’re aware, the market fluctuates, and the industry has a saying: past performance is not a guarantee of future results.
Claiming early means you will take less out of your savings, which would work out at $30,000 a year right now (assuming you get the $2,500 a month from Social Security). It’s always nice to take as little as possible out of your nest egg, so that it continues to grow. Having such a large sum of money to fall back on certainly brings a sense of relief, as I’m sure you’re aware.
On the flip side, if you think you would live long enough to make more out of Social Security by delaying and reaping the benefits for years after, it doesn’t hurt to wait. You need to figure out your own “breakeven point” — the age at which you earn just as much from Social Security when delaying compared to claiming it early. Here’s what I told another reader.
If you’re still on the fence, you could always hold off. You may decide to wait until Full Retirement Age, so that you get 100% of the benefits you’re owed, or maybe just pick sometime between now and then so that you get more per check, but still don’t rush into taking Social Security if you don’t need it.
Keep in mind, you could see your benefits withheld if you ended up working more in that part-time job you love. Social Security recipients who earn over a certain amount see a deduction in benefits before Full Retirement Age. In 2024, the limit is $22,320, where the agency deducts $1 for every $2 above the limit.
That figure changes if it’s the year in which the recipient is turning Full Retirement Age — then it’s $1 in benefits for every $3, and in 2024, that limit is $59,520. Those limits stop when you hit Full Retirement Age. The Social Security Administration will then recalculate your benefit after FRA so you get the money back.
Don’t forget about healthcare. Aside from the costs of insurance premiums and prescriptions, prepare for the unknown. Think about a long-term care plan, especially if you have no dependents and you are living alone. Ask yourself how much your annual distributions would eat into your savings, and if an emergency would put you in financial peril.
Your adviser can help provide you with a trajectory of your assets, taking into consideration rates of return and inflation, to give you an idea of what you may see in that timeframe. I’m sorry to say, there’s really no one right or wrong answer, but you are in a very “blessed” position. Don’t make any hasty decisions, but do enjoy whatever path you take.
Bridget Roy is a news writer for Gibbs Press, where she covers sports, education, and tech. She's also a dedicated educator and advocate for children's rights. In her free time, Bridget likes to read, watch movies with her family, and play video games. She says that while she loves all of those things, they pale in comparison to her love of writing.
