It is critically important to be competent and persuasive to answer the all-important question which so many individuals who are approaching retirement, or in retirement, are routinely asking: “When is the best time to start taking my Social Security income?” The answer in most cases is very simple: take as much Social Security income as you can, as soon as you possibly can.
Myth #1: If You Wait You Get More
The older you are when you start, the more Social Security monthly income you receive. The Social Security Administration thus entices people to wait longer. But let’s look at this a little deeper.
The Rest Of The Story: Let’s use an example. Assume at age 62 a person’s Social Security monthly income will be $1,000 per month. However, if they wait until age 67, this monthly income increases to $1,500. More is better, right?
However, in order to get this extra $500 per month, this individual had to wait five years. So if we calculate the income this person did not receive, it comes out to $60,000 ($1,000 per month for 5 years).
The proper thing to do in this example is analyze the pros and cons of waiting 5 years for the extra $500 per month. Using the example, the pros are simple. Waiting earns you an extra $500 per month, which is a good thing.
Now let’s take a look at the cons. How many months does it take someone to simply break even (from a financial perspective)? Well, if you divide $60,000 (lost income) by the $500 (additional income), it comes out to 10 years. However, the story does not end here. Remember, by waiting 5 years this person is now 67 years old, correct? Therefore, in order to accurately calculate the lost income and “break-even” point, you also have to add in the five years this person waited (from age 62-67). Therefore, it really takes this person 15 years to simply break even and justify deferring their Social Security income.
Myth #2: My Income and Taxes Will Be Lower in Retirement
Far too often individuals, couples, and financial professionals make major mistakes as a result of basing a financial decision upon its tax consequences. (Note: For the sake of brevity, I will not go into the various ways — and rates — Social Security income can be taxed.)
Most of us have heard the argument; “I will be in a lower tax bracket when I retire”. This statement never ceases to amaze me and, more importantly, disturb me for several reasons. First, why do so many aspire to have a significant “pay cut” reduction in their income once they reach retirement.
Retirement is commonly referred to as the “Golden Years”, right? This implies that you worked hard and long enough to have saved enough gold to live like Kings and Queens.
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