Unless you know your date of death, it’s challenging to know how to accomplish maximizing Social Security benefits for lifetime payments. But, as explained in an article titled “How to Calculate Your Social Security Break-Even Age” from U.S. News & World Report, you can get close. Beck & Lenox Estate Planning and Elder Law have long advocated for smart decision planning for those who will depend upon Social Security for retirement income.
Age 62 is when people can start taking payments, but they will be reduced compared to those taken at full retirement age. To achieve the maximum monthly benefit, wait to take benefits at age 70. The total monthly benefit will be higher if you start collecting at a later age, but it will take a while to receive the same amount if you start taking benefits earlier. The “break-even” point comes when the payments later in life begin to exceed the value of taking payments earlier.
A number of factors are at play:
- Your personal and family health history
- Your spouse’s age and benefits level
- Other income streams
Here’s one example. If your full retirement age (FRA) is 67 and your benefits will be $2,000 per month, but you decide to collect at age 62, your monthly benefit is reduced by up to 30%. You’ll receive $600 less if you start payments at age 62, and your monthly benefit will be reduced to $1,400. If you can wait until your Full Retirement Age, the monthly benefit will be $2,000. Every additional year after age 67 you don’t take benefits, your monthly benefit increases by 8%. This would give you a monthly benefit of $2,480 per month at age 70.
Taking the wider view, claiming at age 62 means a total of around $470,000 in benefits if you live to 90 (not including any COLAs, or Cost Of Living Adjustments). Claiming at Full Retirement Age would net about $595,000 by age 90. If you started claiming benefits at age 62, you’d have to reach age 80 to break even with what you would have received if you’d waited until Full Retirement Age (FRA).
But there are other things to take into consideration. Since none of us knows when we are going to die, deciding when to start taking Social Security benefits should look at other considerations. One is your life expectancy. In some families, living into the late 90s is common, while others rarely make it past 70. If you have a chronic medical condition like diabetes, a heart condition or cancer, you may want to start taking benefits earlier.
Another element is your spouse’s medical status and benefits. If the main breadwinner takes benefits early, the surviving spouse’s benefits will be reduced. When one spouse dies, the surviving spouse will receive the higher of the two benefits.
Whether you are still working is another factor to consider. Earning more than $19,560 while collecting Social Security means any benefits will be reduced. If you earn more than $19,560 in 2022 and are collecting benefits before your FRA, your benefit will be temporarily reduced by $1 for every $2 earned above the limit. When you reach FRA, then you can earn an unlimited amount with no reduction in Social Security benefits.
If there are other income streams for the household, it may make sense to use those accounts for income and hold off on Social Security. But if funds are tight and you don’t expect to live a long life, it may make more sense to file for benefits earlier, rather than later. Your financial planner and/or your estate planning attorney, like the ones at Beck & Lenox, may be good sounding boards for any decision you think you want to make.
Reference: U.S. News & World Report (Aug. 26, 2022) “How to Calculate Your Social Security Break-Even Age”