May 20, 2025 • 19 mins
Deciding when to start your Social Security benefits might be the single most consequential financial decision of your retirement journey. Should you claim early at 62, wait until full retirement age at 67, or delay until 70 to maximize your monthly check? The answer isn't as straightforward as many think.
Your Social Security benefit is calculated using your 35 highest-earning years, adjusted for inflation. This forms your Primary Insurance Amount (PIA) – what you're entitled to at full retirement age. But here's where strategy enters: claiming at 62 permanently reduces your benefit by about 30%, while each year you delay beyond full retirement age adds a valuable 8% to your monthly check (up to age 70).
The early claiming strategy at 62 offers immediate cash flow and potentially preserves your investment portfolio longer. However, it comes with serious trade-offs: permanently reduced monthly benefits, earnings limits if you're still working ($23,400 before penalties kick in), and potentially smaller survivor benefits for your spouse. This decision isn't just about you – it affects your family's financial security after you're gone.
Waiting until full retirement age gives you 100% of your calculated benefit and eliminates the earnings test if you're still working. It represents a balanced approach that neither maximizes nor minimizes your benefit. Meanwhile, delaying until 70 increases your monthly check by a substantial 24% over your full retirement age benefit – creating the strongest possible income floor for life and maximum protection against longevity risk. This delay strategy also opens tax planning opportunities in your 60s, particularly for Roth conversions.
The optimal claiming age depends on your unique circumstances. Consider your health outlook, marital status, other income sources, tax situation, and overall retirement income needs. Remember that this isn't simply about break-even calculations – it's about creating security and maximizing quality of life throughout your retirement journey.
Ready to get clarity on your optimal Social Security strategy? Visit our website to discover how personalized retirement planning can help you make the most of your benefits and create lasting financial security for you and your loved ones.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
When should you really start social security?
As a financial advisor, I'veseen firsthand how this decision
could very well be one of themost important retirement
decisions you make.
But with so many differentvariables to consider, how do
you know which option is rightfor you?
Well, in today's video, I'mgoing to walk you through the
pros and the cons, as well asother considerations, of
collecting to age 62, versus 67,versus 70, to help you
(00:22):
understand what might be bestfor you.
So, before jumping right intothe pros and cons, we have to
lay the groundwork byunderstanding some of the social
security basics, some of thefoundations, because this
information is what will be mostrelevant in determining the
pros and the cons of each.
So, number one the way thatsocial security is actually
calculated is a social securityadministration looks at your 35
highest years of inflationadjusted earnings.
(00:45):
So there's an actual formulathat dictates exactly what's
called your primary insuranceamount, which is the amount of
social security benefit orsocial security income you are
eligible for at your fullretirement age.
This formula is based upon your35 highest years of inflation
adjusted earnings.
So that's number one.
Number two your full retirementage.
(01:07):
So that age by which you getyour primary insurance amount is
anywhere from age 66 to 67,depending upon the year in which
you were born.
It used to be even earlier, butas they push the social
security ages back, for those ofyou that aren't already
collecting your benefit age willbe somewhere between 66 and 67,
and that will be your fullretirement age, and that's the
age at which you receive yourfull benefit.
(01:28):
Now, I'll touch on this morelater, but don't confuse full
benefit with max benefit.
Full benefit essentially meansyou're eligible for 100% of your
primary insurance amount.
There's actually ways toincrease that even more, and
we'll talk about those in just abit.
Now, the third thing that youneed to understand before we
jump into pros and cons is thatyou don't have to collect Social
Security at your fullretirement age.
Every year that you wait beyondyour full retirement age, you
(01:51):
get what are called delayedretirement credits, so those are
increases above and beyond yourprimary insurance amount.
Every year, or even every month, you collect your Social
Security income before your fullretirement age, you are taking
a reduction in benefits.
Now here's the thing.
Most people think that thedecision to collect at 62 versus
full retirement age or 70 justcomes down to the amount, but
(02:13):
that's only one part of theoverall consideration.
What you can see right here isyou can see the impact of
collecting social security earlyand you can see if the 36
months leading up to your fullretirement age or the three
years leading up to your fullretirement age every year you
collect early, you are taking a6.67% reduction in the benefit
(02:34):
that you will now receive forthe rest of your life.
Now that's actually factoredinto a monthly calculation,
meaning it's not like you getbig step ups or big jumps by
waiting from 65 to 66 and then66 to 67.
Every month that you delay orevery month that you collect
early, that reduction is takento an account on a prorated
basis, but a 6.67% reduction foreach year and the first three
(02:56):
years that you potentiallycollect early before your full
retirement age.
This graphic is showing fullretirement age at age 67.
That full retirement age couldbe a little bit sooner.
Now, again in this example,looking back at this graphic, if
you're collecting years earlier, even before that, so if you
collect at 63 or even 62, you'reaccepting or you're taking only
5% reduction compared to whereyour benefit would have been
(03:18):
prior to that.
So a bigger reduction for everyyear you collect early before
age 67 up to those first threeyears of collecting early and
then the final two years.
So if you were to collect fouryears earlier, five years early,
an additional 5% reduction,such that if you collect at age
62 and your full retirement ageis age 67, your benefit at 62 is
70% of what your primaryinsurance amount would have been
(03:41):
.
So that's the impact ofcollecting early.
Now, over here, what you cansee is this is the impact of
delaying your benefit.
Every year that you delay yourbenefit beyond your full
retirement age, you get what'scalled a delayed retirement
credit.
The delayed retirement creditis an extra 8% increase in your
monthly social security payment.
Now, one thing that's importantto consider is this is not a
(04:02):
compound 8%.
It's a simple 8% adjustment.
So if you delay one year, youget 108% of your primary
insurance amount, if you delaytwo years, 116%, and if you
delay three years, 124%.
So keep that information inmind.
Let's now take a look atcollecting at 62 versus 67
versus 70.
To understand the pros and consof each, let's start with age
(04:22):
62.
The obvious downside is what wejust talked about you are
locking in a lower monthlyamount, but that's not the only
thing that we have to consider.
Another thing that I would haveyou consider is by the time
that you're 62, let's assumethat you're working at 62 and
you retire and collect yourbenefit then there's a very good
chance that you are in some ofyour peak earning years at age
62.
Let's go back to what I talkedabout at the very beginning.
(04:44):
Your social security benefit isbased upon your 35 highest years
of earnings and those earningsare inflation adjusted.
So let's assume that in your20s and maybe even early 30s,
you had jobs, but they wererandom jobs.
Here and there you didn'tactually earn that much, even on
an inflation adjusted basis.
So when you look at those 35years a whole bunch of them you
had earnings, but they weren'treally that much.
(05:05):
You weren't really contributingthat much to the formula that
impacts how your social securitybenefit is calculated.
So by collecting socialsecurity at 62, I'm somewhat
making the assumption thatyou're also stopping your work,
stopping work at a higher peakearning years, and what that
could mean is not just thereduction by collecting at age
62 versus 67, but you may besaying no to higher years of
(05:28):
earnings that would haveactually increased what that
benefit would have been at 67.
This isn't always the case, butcertainly something to keep in
mind is by 62, do you have 35strong earnings years and, if
not, every year that you wouldhave kept working?
You're actually increasing theamount that your full retirement
age benefit, your primaryinsurance amount, would have
been Now.
(05:48):
Another downside of collectingat age 62 is there's an earnings
limit.
So maybe you're collecting at62, but you still want to work.
Even you just want to workpart-time or to some extent.
$23,400 is the limit of whatyou can earn before social
security starts withholding someof your payments.
For every $2 that you earn inexcess of that limit, social
Security will withhold $1 ofbenefits.
(06:10):
Now the good news is this isjust looking at you.
So if you're married, yourspouse can earn whatever they
want to earn.
They could earn a milliondollars a year.
That's not going to impact yourearnings limit.
Your earnings limit is onlylooking at the income that you
are bringing in, but this isreally important to know.
If you are collecting early, itis limiting how much you can
then earn in other types ofincome.
(06:31):
This does not include portfoliowithdrawals, pensions,
investment withdrawals.
It's just earned income thatthis is looking at.
The final downside is the way inwhich collecting early impacts
spousal or survivor benefits.
Now, spousal benefits itactually doesn't impact too much
.
Even if you collect early andyou have a spouse that's
planning to collect a spousalbenefit, based on your earnings
(06:51):
record, they could still waituntil their full retirement age
and get their full spousalbenefit.
That's based on 50% of yourprimary insurance amount.
So you collecting early.
The good news is it does notimpact your spouse's ability to
get a full spousal benefit.
What it does impact is asurvivor benefit.
If you are the spouse that has ahigher earnings record and you
(07:11):
collect early, that's not just adecision that you are making
for you.
That's also a decision that'sgoing to impact your spouse if
you pass away before they do so.
For example, maybe you had aspouse that stayed at home and
you were the primary breadwinnerand you turned 62 and you say
you know what?
My health isn't the greatest.
I'm going to collect thisincome while I can because I
might not live all that muchlonger.
As an example Now you collectthat early and you're exactly
(07:34):
right.
Maybe within five years or 10years you do pass away, but your
spouse is in great health.
Well, that benefit, that incomethat helped you and if you were
single, that was probably theright decision to make.
But are you taking into accountthe impact on your surviving
spouse?
If your surviving spouse is ingreat health and they live for
another 30 years after you pass,they are now living on a
(07:56):
survivor benefit.
That is 100% of what yourbenefit was, but your benefit is
as small as it could be becauseyou collected at age 62.
So there's some instances wherethat should be taken into
account, some instances wherethat's actually not going to be
a deal breaker and you stillshould collect early.
But that is something that'svery important to know is don't
just look at your benefit.
If you are married, understandthe impact on a survivor benefit
(08:19):
.
Now let's look at the positives,the pros, the benefits of
collecting early.
The most obvious one is accessto the funds.
Now Sometimes you just needfunds, you just need the money.
You don't have the luxury ofbeing able to wait or be able to
pull from other resources.
Well, social security could dothat for you.
As soon as you turn age 62, youare eligible for that social
security benefit.
By the way, and as an aside forsurvivor benefits, you are
(08:42):
actually eligible to collectthose as soon as age 60.
It means a reduction inbenefits, but something that's
very important to know ifsomeone's looking to collect a
survivor benefit on theirdeceased spouse.
So if you're 62 and you collectbenefits, it's immediate cash
flow.
That is obviously a benefit.
The second benefit and peopledon't often think about this or
don't think about it nearlyenough is every dollar that you
pull in social security is onefewer dollar that you have to
(09:06):
pull from your investmentportfolio.
So people are looking atbreak-evens.
They're saying how long am Igonna live and that's gonna help
me determine when should Icollect social security.
There's a break-even sometimebetween your mid-70s to early
80s, depending on what agesyou're comparing.
But that break-even is justlooking at social security in a
vacuum.
That break-even analysis lookscompletely different if, when
(09:28):
collecting early, it meansyou're leaving more money in
your portfolio to grow for you,that is a real opportunity cost
and that's actually a realbenefit in some cases.
If you're collecting socialsecurity early, less pressure in
your portfolio ensure you'relocking in a lower income amount
, a lower social security incomefor the rest of your life, but
are you also increasing yourportfolio and the income it can
(09:48):
generate for you by doing so Notthe case always, but absolutely
something that you should lookat and that is a potential
positive or benefit ofcollecting social security early
.
Now let's explore the pros andthe cons of collecting at age 67
.
And before we do so, make surethat you subscribe.
Every single week we'rereleasing multiple episodes
talking about how you can createa more secure retirement.
So subscribe, make sure youdon't ever miss one of those
(10:09):
episodes.
So, age 67, what's the firstbenefit?
Well, the first benefit is youare now eligible for 100% of
your primary insurance amount.
Going back to that calculationthat 35 years of highest
earnings, all that goes intodefining your primary insurance
amount.
If, by the time you reach fullretirement age which will be 67
for a lot of you watching youare eligible for 100% of that.
(10:30):
You are no longer taking areduction or reducing your
benefit by collecting early.
So that's the first benefit is,you're eligible for 100% of
that.
The second benefit is actually atax benefit and it's not a tax
benefit that's any differentthan collecting at age 62.
But the way Social Security istaxed is much a tax benefit and
it's not a tax benefit that'sany different than collecting
the H-62, but the way a socialsecurity is taxed is much more
tax efficient than the way, say,a traditional IRA withdrawal is
(10:51):
taxed For one.
Most states do not tax socialsecurity.
Number two at a maximum, 85% ofyour social security income
amount is included in yourtaxable income when you file
taxes or when you pay taxes,meaning $1 of social security
income amount is included inyour taxable income when you
file taxes or when you pay taxes, meaning $1 of social security
is going to be worth more aftertaxes, than $1 of IRA income or
(11:14):
pension income.
So by waiting until 67, ascompared to 62, it's not just a
higher amount, but it's a highertax adjusted amount.
Now, same social security taxbenefits at 62 versus 67.
But of course, at age 67,because you have more dollars,
because you have more incomefrom social security, you also
have more tax benefits.
Now the final benefit ofcollecting at age 67 is it's a
(11:36):
nice balance.
You're not waiting all the wayuntil 70, deferring cash flow
all the way until then, butyou're also not minimizing your
benefit by collecting at age 62.
So it's a good, balancedapproach that somewhat gives you
the best of both worlds.
Now the downsides of collectingat age 67, you can also look at
what I just said.
As a downside, it's not givingyou the best of both worlds.
It's neither giving youimmediate cash flow, like
(11:57):
collecting at age 62 would, noris it fully maximizing your
benefit.
So, depending on how you lookat this, this could be either a
pro or a con, because you'reneither getting the best of both
worlds, but nor are you gettingthe worst of either.
So it can be a good balance,but the downside is you're not
maximizing cashflow coming in ormaximize your benefit by
delaying.
So the next downside that Iwould consider of collecting at
(12:18):
age 67 is if you are someonethat does not have a long life
expectancy you are in poorhealth by delaying, you might
actually be minimizing theamount of lifetime social
security benefits that you'regoing to collect.
If you knew for certain youwere not going to live past age
70, well, why wait until age 67to collect?
Why not collect earlier?
It's a lower amount, but you'regetting more months of income
(12:41):
from your social securitypayment.
So that's where the breakevenanalysis comes into play.
But if you don't have a longlife expectancy and, like I said
previously, if you are married,you also need to take into
account your spouse's lifeexpectancy.
But if either you're single orboth you and your spouse are in
very poor health, delaying yourbenefit until age 67 might
actually end up costing you.
So those are the pros and consof collecting at age 67.
(13:03):
And now, finally, let's talkabout the pros and cons of
collecting at age 70.
Let's start with the pro.
The biggest obvious pro is youhave maximized what your social
security benefit can be.
You have paid into the systemyour whole life.
You have now maximized whatthat system will now pay to you,
and if you're collecting at 70versus age 67, your monthly
(13:27):
benefit will be 24% higher everysingle month, and that benefit
is locked in for as long as youlive.
So that is by far the mostvaluable benefit of waiting
until age 70.
The second benefit is that bywaiting until age 70, for a lot
of people this is unlockingpotential tax strategies that
you can take advantage of inyour early to mid 60s.
Roth conversions is a big one.
For Roth conversions to be aseffective as possible, you want
to keep your taxable income aslow as possible for a number of
(13:50):
years, because as you keep yourtaxable income as low as
possible, you can simultaneouslystart to convert parts of your
traditional accounts, yourtraditional IRAs into your Roth
IRAs.
So pushing Social Security outis keeping your taxable income
clear.
It's keeping it low for some ofthose middle years, so it opens
up some really strong potentialtax strategy.
(14:10):
The third benefit is by maxingyour benefit at age 70 is you're
minimizing the severity offailure in your plan.
I'll talk about this a lot.
With Monte Carlo simulations.
People look at it as a 60%probability of success or 90%
probability of success orwhatever that number actually is
.
And that's only half theequation.
The other half is what's theseverity of failure If you max
(14:30):
your social security benefit atage 70,?
Let's assume that that incomeamount is now $4,000 per month
and you only want to spend,let's say, $4,200 per month.
Well, if you run out of moneyin your portfolio and you want
to spend 42, but you're actuallyjust stuck with 4,000 per month
from your social securitybenefit, that severity of
failure is not that horrible.
You're taking a cut.
Of course, instead of spending4,200 per month, you're only
(14:52):
spending 4,000 per month.
But it's not a dramatic cut,not like it would have been if
your social security benefit wasonly $2,000 per month.
So by maximizing your benefit,what you're doing is you're
buying yourself more flexibilitywhere, if you do happen to run
out of other savings or otherportfolio assets or things go
south, you have this higher,stable income floor that can
continue meeting your needs,even if things didn't go as well
(15:14):
for you in other aspects ofyour plan.
The next benefit is aroundsomething called longevity risk.
Believe it or not, living along time is actually a risk to
your financial plan, yourportfolio assets, your resources
.
They were not designed in allcases to support you for a 30,
40, 50 year retirement.
Now, I know that's starting toseem pretty extreme, depending
on the age at which you retire,but if you live to 110 and you
(15:35):
blow through all your assets,well, maximizing your social
security benefit, that's goingto last as long as you live.
So it's giving you a largerincome floor that you can carry
with you for the rest of yourlife, of course.
And then, finally, the finalbenefit is not only is this
income amount locked in for you,it's locked in for a spouse if
you're married.
So you're not just maximizingyour income, you're also
(15:55):
protecting a surviving spouse inthe instance in which maybe
their benefit is not as high asyours would have been.
So those are the benefits.
Now let's touch upon the cons,the downsides.
The first one, of course, isthis requires some serious
delayed gratification.
Now, maybe you're working until70, so you don't need the
benefit and this doesn't reallyfeel like delayed gratification.
But maybe you retired at 62.
(16:15):
And by not collecting socialsecurity, there's a lot of
delayed gratification and notjust delayed gratification but
you're having to spend down yourportfolio assets.
So sure, you're maximizing yoursocial security income, but are
you simultaneously reducing theamount of income your portfolio
can create for you for the restof your life?
That is a potential downside.
The second downside is what ifyou don't get to enjoy that
(16:36):
money?
What if you don't have the lifeexpectancy you think you're
going to have?
Go back to my example earlier.
If you knew for a fact you weregoing to die at 70, you would
not wait until 70 to collectSocial Security.
Now, the thing about our dateof death is we don't ever know
exactly when that's going to be.
So, of course, if we knew forcertain we were going to live a
long time, the more it makessense to delay our benefit.
If we knew, on the other hand,that we were going to pass away
(16:59):
early, the more.
It probably makes sense toconsider collecting early Now,
because we don't know what we dois.
We try to minimize risk and soby pushing the age out until 70,
we've minimized that longevityrisk.
Just keep in mind that presentsanother risk, and that risk is,
if you pass away before youstart collecting your benefit,
you don't get anything reallyfrom the system.
(17:27):
Social security is designed tobe a social insurance net, a
social insurance system.
What that means is, if you payin and you pass away before you
collect, those benefitsessentially disappear.
Now, of course, if you'remarried, your spouse can still
collect a survivor benefit basedupon that, but it's not
something like a retirementportfolio or a home or another
asset that will pass to yourchildren if you don't end up
using all of it.
And then the final downside isthe opportunity cost of not
using the money sooner.
We already somewhat coveredthat, as by delaying until 70,
you're spending down yourportfolio assets, which means
(17:49):
there's less of a portfolio baseto create more income for you
in the future.
That being said, there aretremendous benefits and
potential downsides tocollecting at 62, 67, and 70.
None of them is aone-size-fits-all solution, but
understanding both how socialsecurity works in general, as
well as the pros and the cons ofeach of these potential
collection dates, will allow youto make a more informed
(18:11):
decision for yourself.
Now, all of these, all thesebenefits, could be improved if
you know what you need to do tomaximize your social security
benefit.
That's why I made this videoright here.
In this video, I walk throughfour simple things you can do to
maximize your social securitybenefit, whether you're
collecting at $62, $67, $70, oranywhere in between.
(18:33):
Root Financial has not providedany compensation for and has not
influenced the content of anytestimonials and endorsements
shown.
Any testimonials andendorsements shown have been
invited, have been shared witheach individual's permission and
are not necessarilyrepresentative of the experience
of other clients.
To our knowledge, no otherconflicts of interest exist
regarding these testimonials andendorsements.
Once again, I'm James Canole,founder of Root Financial, and
(18:57):
if you're interested in seeinghow we help our clients at Root
Financial get the most out oflife with their money, be sure
to visit us atwwwrootfinancialpartnerscom.
When should you really start social security?
As a financial advisor, I'veseen firsthand how this decision
could very well be one of themost important retirement
decisions you make.
But with so many differentvariables to consider, how do
you know which option is rightfor you?
Well, in today's video, I'mgoing to walk you through the
pros and the cons, as well asother considerations, of
collecting to age 62, versus 67,versus 70, to help you
(00:22):
understand what might be bestfor you.
So, before jumping right intothe pros and cons, we have to
lay the groundwork byunderstanding some of the social
security basics, some of thefoundations, because this
information is what will be mostrelevant in determining the
pros and the cons of each.
So, number one the way thatsocial security is actually
calculated is a social securityadministration looks at your 35
highest years of inflationadjusted earnings.
(00:45):
So there's an actual formulathat dictates exactly what's
called your primary insuranceamount, which is the amount of
social security benefit orsocial security income you are
eligible for at your fullretirement age.
This formula is based upon your35 highest years of inflation
adjusted earnings.
So that's number one.
Number two your full retirementage.
(01:07):
So that age by which you getyour primary insurance amount is
anywhere from age 66 to 67,depending upon the year in which
you were born.
It used to be even earlier, butas they push the social
security ages back, for those ofyou that aren't already
collecting your benefit age willbe somewhere between 66 and 67,
and that will be your fullretirement age, and that's the
age at which you receive yourfull benefit.
(01:28):
Now, I'll touch on this morelater, but don't confuse full
benefit with max benefit.
Full benefit essentially meansyou're eligible for 100% of your
primary insurance amount.
There's actually ways toincrease that even more, and
we'll talk about those in just abit.
Now, the third thing that youneed to understand before we
jump into pros and cons is thatyou don't have to collect Social
Security at your fullretirement age.
Every year that you wait beyondyour full retirement age, you
(01:51):
get what are called delayedretirement credits, so those are
increases above and beyond yourprimary insurance amount.
Every year, or even every month, you collect your Social
Security income before your fullretirement age, you are taking
a reduction in benefits.
Now here's the thing.
Most people think that thedecision to collect at 62 versus
full retirement age or 70 justcomes down to the amount, but
(02:13):
that's only one part of theoverall consideration.
What you can see right here isyou can see the impact of
collecting social security earlyand you can see if the 36
months leading up to your fullretirement age or the three
years leading up to your fullretirement age every year you
collect early, you are taking a6.67% reduction in the benefit
(02:34):
that you will now receive forthe rest of your life.
Now that's actually factoredinto a monthly calculation,
meaning it's not like you getbig step ups or big jumps by
waiting from 65 to 66 and then66 to 67.
Every month that you delay orevery month that you collect
early, that reduction is takento an account on a prorated
basis, but a 6.67% reduction foreach year and the first three
(02:56):
years that you potentiallycollect early before your full
retirement age.
This graphic is showing fullretirement age at age 67.
That full retirement age couldbe a little bit sooner.
Now, again in this example,looking back at this graphic, if
you're collecting years earlier, even before that, so if you
collect at 63 or even 62, you'reaccepting or you're taking only
5% reduction compared to whereyour benefit would have been
(03:18):
prior to that.
So a bigger reduction for everyyear you collect early before
age 67 up to those first threeyears of collecting early and
then the final two years.
So if you were to collect fouryears earlier, five years early,
an additional 5% reduction,such that if you collect at age
62 and your full retirement ageis age 67, your benefit at 62 is
70% of what your primaryinsurance amount would have been
(03:41):
.
So that's the impact ofcollecting early.
Now, over here, what you cansee is this is the impact of
delaying your benefit.
Every year that you delay yourbenefit beyond your full
retirement age, you get what'scalled a delayed retirement
credit.
The delayed retirement creditis an extra 8% increase in your
monthly social security payment.
Now, one thing that's importantto consider is this is not a
(04:02):
compound 8%.
It's a simple 8% adjustment.
So if you delay one year, youget 108% of your primary
insurance amount, if you delaytwo years, 116%, and if you
delay three years, 124%.
So keep that information inmind.
Let's now take a look atcollecting at 62 versus 67
versus 70.
To understand the pros and consof each, let's start with age
(04:22):
62.
The obvious downside is what wejust talked about you are
locking in a lower monthlyamount, but that's not the only
thing that we have to consider.
Another thing that I would haveyou consider is by the time
that you're 62, let's assumethat you're working at 62 and
you retire and collect yourbenefit then there's a very good
chance that you are in some ofyour peak earning years at age
62.
Let's go back to what I talkedabout at the very beginning.
(04:44):
Your social security benefit isbased upon your 35 highest years
of earnings and those earningsare inflation adjusted.
So let's assume that in your20s and maybe even early 30s,
you had jobs, but they wererandom jobs.
Here and there you didn'tactually earn that much, even on
an inflation adjusted basis.
So when you look at those 35years a whole bunch of them you
had earnings, but they weren'treally that much.
(05:05):
You weren't really contributingthat much to the formula that
impacts how your social securitybenefit is calculated.
So by collecting socialsecurity at 62, I'm somewhat
making the assumption thatyou're also stopping your work,
stopping work at a higher peakearning years, and what that
could mean is not just thereduction by collecting at age
62 versus 67, but you may besaying no to higher years of
(05:28):
earnings that would haveactually increased what that
benefit would have been at 67.
This isn't always the case, butcertainly something to keep in
mind is by 62, do you have 35strong earnings years and, if
not, every year that you wouldhave kept working?
You're actually increasing theamount that your full retirement
age benefit, your primaryinsurance amount, would have
been Now.
(05:48):
Another downside of collectingat age 62 is there's an earnings
limit.
So maybe you're collecting at62, but you still want to work.
Even you just want to workpart-time or to some extent.
$23,400 is the limit of whatyou can earn before social
security starts withholding someof your payments.
For every $2 that you earn inexcess of that limit, social
Security will withhold $1 ofbenefits.
(06:10):
Now the good news is this isjust looking at you.
So if you're married, yourspouse can earn whatever they
want to earn.
They could earn a milliondollars a year.
That's not going to impact yourearnings limit.
Your earnings limit is onlylooking at the income that you
are bringing in, but this isreally important to know.
If you are collecting early, itis limiting how much you can
then earn in other types ofincome.
(06:31):
This does not include portfoliowithdrawals, pensions,
investment withdrawals.
It's just earned income thatthis is looking at.
The final downside is the way inwhich collecting early impacts
spousal or survivor benefits.
Now, spousal benefits itactually doesn't impact too much
.
Even if you collect early andyou have a spouse that's
planning to collect a spousalbenefit, based on your earnings
(06:51):
record, they could still waituntil their full retirement age
and get their full spousalbenefit.
That's based on 50% of yourprimary insurance amount.
So you collecting early.
The good news is it does notimpact your spouse's ability to
get a full spousal benefit.
What it does impact is asurvivor benefit.
If you are the spouse that has ahigher earnings record and you
(07:11):
collect early, that's not just adecision that you are making
for you.
That's also a decision that'sgoing to impact your spouse if
you pass away before they do so.
For example, maybe you had aspouse that stayed at home and
you were the primary breadwinnerand you turned 62 and you say
you know what?
My health isn't the greatest.
I'm going to collect thisincome while I can because I
might not live all that muchlonger.
As an example Now you collectthat early and you're exactly
(07:34):
right.
Maybe within five years or 10years you do pass away, but your
spouse is in great health.
Well, that benefit, that incomethat helped you and if you were
single, that was probably theright decision to make.
But are you taking into accountthe impact on your surviving
spouse?
If your surviving spouse is ingreat health and they live for
another 30 years after you pass,they are now living on a
(07:56):
survivor benefit.
That is 100% of what yourbenefit was, but your benefit is
as small as it could be becauseyou collected at age 62.
So there's some instances wherethat should be taken into
account, some instances wherethat's actually not going to be
a deal breaker and you stillshould collect early.
But that is something that'svery important to know is don't
just look at your benefit.
If you are married, understandthe impact on a survivor benefit
(08:19):
.
Now let's look at the positives,the pros, the benefits of
collecting early.
The most obvious one is accessto the funds.
Now Sometimes you just needfunds, you just need the money.
You don't have the luxury ofbeing able to wait or be able to
pull from other resources.
Well, social security could dothat for you.
As soon as you turn age 62, youare eligible for that social
security benefit.
By the way, and as an aside forsurvivor benefits, you are
(08:42):
actually eligible to collectthose as soon as age 60.
It means a reduction inbenefits, but something that's
very important to know ifsomeone's looking to collect a
survivor benefit on theirdeceased spouse.
So if you're 62 and you collectbenefits, it's immediate cash
flow.
That is obviously a benefit.
The second benefit and peopledon't often think about this or
don't think about it nearlyenough is every dollar that you
pull in social security is onefewer dollar that you have to
(09:06):
pull from your investmentportfolio.
So people are looking atbreak-evens.
They're saying how long am Igonna live and that's gonna help
me determine when should Icollect social security.
There's a break-even sometimebetween your mid-70s to early
80s, depending on what agesyou're comparing.
But that break-even is justlooking at social security in a
vacuum.
That break-even analysis lookscompletely different if, when
(09:28):
collecting early, it meansyou're leaving more money in
your portfolio to grow for you,that is a real opportunity cost
and that's actually a realbenefit in some cases.
If you're collecting socialsecurity early, less pressure in
your portfolio ensure you'relocking in a lower income amount
, a lower social security incomefor the rest of your life, but
are you also increasing yourportfolio and the income it can
(09:48):
generate for you by doing so Notthe case always, but absolutely
something that you should lookat and that is a potential
positive or benefit ofcollecting social security early
.
Now let's explore the pros andthe cons of collecting at age 67
.
And before we do so, make surethat you subscribe.
Every single week we'rereleasing multiple episodes
talking about how you can createa more secure retirement.
So subscribe, make sure youdon't ever miss one of those
(10:09):
episodes.
So, age 67, what's the firstbenefit?
Well, the first benefit is youare now eligible for 100% of
your primary insurance amount.
Going back to that calculationthat 35 years of highest
earnings, all that goes intodefining your primary insurance
amount.
If, by the time you reach fullretirement age which will be 67
for a lot of you watching youare eligible for 100% of that.
(10:30):
You are no longer taking areduction or reducing your
benefit by collecting early.
So that's the first benefit is,you're eligible for 100% of
that.
The second benefit is actually atax benefit and it's not a tax
benefit that's any differentthan collecting at age 62.
But the way Social Security istaxed is much a tax benefit and
it's not a tax benefit that'sany different than collecting
the H-62, but the way a socialsecurity is taxed is much more
tax efficient than the way, say,a traditional IRA withdrawal is
(10:51):
taxed For one.
Most states do not tax socialsecurity.
Number two at a maximum, 85% ofyour social security income
amount is included in yourtaxable income when you file
taxes or when you pay taxes,meaning $1 of social security
income amount is included inyour taxable income when you
file taxes or when you pay taxes, meaning $1 of social security
is going to be worth more aftertaxes, than $1 of IRA income or
(11:14):
pension income.
So by waiting until 67, ascompared to 62, it's not just a
higher amount, but it's a highertax adjusted amount.
Now, same social security taxbenefits at 62 versus 67.
But of course, at age 67,because you have more dollars,
because you have more incomefrom social security, you also
have more tax benefits.
Now the final benefit ofcollecting at age 67 is it's a
(11:36):
nice balance.
You're not waiting all the wayuntil 70, deferring cash flow
all the way until then, butyou're also not minimizing your
benefit by collecting at age 62.
So it's a good, balancedapproach that somewhat gives you
the best of both worlds.
Now the downsides of collectingat age 67, you can also look at
what I just said.
As a downside, it's not givingyou the best of both worlds.
It's neither giving youimmediate cash flow, like
(11:57):
collecting at age 62 would, noris it fully maximizing your
benefit.
So, depending on how you lookat this, this could be either a
pro or a con, because you'reneither getting the best of both
worlds, but nor are you gettingthe worst of either.
So it can be a good balance,but the downside is you're not
maximizing cashflow coming in ormaximize your benefit by
delaying.
So the next downside that Iwould consider of collecting at
(12:18):
age 67 is if you are someonethat does not have a long life
expectancy you are in poorhealth by delaying, you might
actually be minimizing theamount of lifetime social
security benefits that you'regoing to collect.
If you knew for certain youwere not going to live past age
70, well, why wait until age 67to collect?
Why not collect earlier?
It's a lower amount, but you'regetting more months of income
(12:41):
from your social securitypayment.
So that's where the breakevenanalysis comes into play.
But if you don't have a longlife expectancy and, like I said
previously, if you are married,you also need to take into
account your spouse's lifeexpectancy.
But if either you're single orboth you and your spouse are in
very poor health, delaying yourbenefit until age 67 might
actually end up costing you.
So those are the pros and consof collecting at age 67.
(13:03):
And now, finally, let's talkabout the pros and cons of
collecting at age 70.
Let's start with the pro.
The biggest obvious pro is youhave maximized what your social
security benefit can be.
You have paid into the systemyour whole life.
You have now maximized whatthat system will now pay to you,
and if you're collecting at 70versus age 67, your monthly
(13:27):
benefit will be 24% higher everysingle month, and that benefit
is locked in for as long as youlive.
So that is by far the mostvaluable benefit of waiting
until age 70.
The second benefit is that bywaiting until age 70, for a lot
of people this is unlockingpotential tax strategies that
you can take advantage of inyour early to mid 60s.
Roth conversions is a big one.
For Roth conversions to be aseffective as possible, you want
to keep your taxable income aslow as possible for a number of
(13:50):
years, because as you keep yourtaxable income as low as
possible, you can simultaneouslystart to convert parts of your
traditional accounts, yourtraditional IRAs into your Roth
IRAs.
So pushing Social Security outis keeping your taxable income
clear.
It's keeping it low for some ofthose middle years, so it opens
up some really strong potentialtax strategy.
(14:10):
The third benefit is by maxingyour benefit at age 70 is you're
minimizing the severity offailure in your plan.
I'll talk about this a lot.
With Monte Carlo simulations.
People look at it as a 60%probability of success or 90%
probability of success orwhatever that number actually is
.
And that's only half theequation.
The other half is what's theseverity of failure If you max
(14:30):
your social security benefit atage 70,?
Let's assume that that incomeamount is now $4,000 per month
and you only want to spend,let's say, $4,200 per month.
Well, if you run out of moneyin your portfolio and you want
to spend 42, but you're actuallyjust stuck with 4,000 per month
from your social securitybenefit, that severity of
failure is not that horrible.
You're taking a cut.
Of course, instead of spending4,200 per month, you're only
(14:52):
spending 4,000 per month.
But it's not a dramatic cut,not like it would have been if
your social security benefit wasonly $2,000 per month.
So by maximizing your benefit,what you're doing is you're
buying yourself more flexibilitywhere, if you do happen to run
out of other savings or otherportfolio assets or things go
south, you have this higher,stable income floor that can
continue meeting your needs,even if things didn't go as well
(15:14):
for you in other aspects ofyour plan.
The next benefit is aroundsomething called longevity risk.
Believe it or not, living along time is actually a risk to
your financial plan, yourportfolio assets, your resources
.
They were not designed in allcases to support you for a 30,
40, 50 year retirement.
Now, I know that's starting toseem pretty extreme, depending
on the age at which you retire,but if you live to 110 and you
(15:35):
blow through all your assets,well, maximizing your social
security benefit, that's goingto last as long as you live.
So it's giving you a largerincome floor that you can carry
with you for the rest of yourlife, of course.
And then, finally, the finalbenefit is not only is this
income amount locked in for you,it's locked in for a spouse if
you're married.
So you're not just maximizingyour income, you're also
(15:55):
protecting a surviving spouse inthe instance in which maybe
their benefit is not as high asyours would have been.
So those are the benefits.
Now let's touch upon the cons,the downsides.
The first one, of course, isthis requires some serious
delayed gratification.
Now, maybe you're working until70, so you don't need the
benefit and this doesn't reallyfeel like delayed gratification.
But maybe you retired at 62.
(16:15):
And by not collecting socialsecurity, there's a lot of
delayed gratification and notjust delayed gratification but
you're having to spend down yourportfolio assets.
So sure, you're maximizing yoursocial security income, but are
you simultaneously reducing theamount of income your portfolio
can create for you for the restof your life?
That is a potential downside.
The second downside is what ifyou don't get to enjoy that
(16:36):
money?
What if you don't have the lifeexpectancy you think you're
going to have?
Go back to my example earlier.
If you knew for a fact you weregoing to die at 70, you would
not wait until 70 to collectSocial Security.
Now, the thing about our dateof death is we don't ever know
exactly when that's going to be.
So, of course, if we knew forcertain we were going to live a
long time, the more it makessense to delay our benefit.
If we knew, on the other hand,that we were going to pass away
(16:59):
early, the more.
It probably makes sense toconsider collecting early Now,
because we don't know what we dois.
We try to minimize risk and soby pushing the age out until 70,
we've minimized that longevityrisk.
Just keep in mind that presentsanother risk, and that risk is,
if you pass away before youstart collecting your benefit,
you don't get anything reallyfrom the system.
(17:27):
Social security is designed tobe a social insurance net, a
social insurance system.
What that means is, if you payin and you pass away before you
collect, those benefitsessentially disappear.
Now, of course, if you'remarried, your spouse can still
collect a survivor benefit basedupon that, but it's not
something like a retirementportfolio or a home or another
asset that will pass to yourchildren if you don't end up
using all of it.
And then the final downside isthe opportunity cost of not
using the money sooner.
We already somewhat coveredthat, as by delaying until 70,
you're spending down yourportfolio assets, which means
(17:49):
there's less of a portfolio baseto create more income for you
in the future.
That being said, there aretremendous benefits and
potential downsides tocollecting at 62, 67, and 70.
None of them is aone-size-fits-all solution, but
understanding both how socialsecurity works in general, as
well as the pros and the cons ofeach of these potential
collection dates, will allow youto make a more informed
(18:11):
decision for yourself.
Now, all of these, all thesebenefits, could be improved if
you know what you need to do tomaximize your social security
benefit.
That's why I made this videoright here.
In this video, I walk throughfour simple things you can do to
maximize your social securitybenefit, whether you're
collecting at $62, $67, $70, oranywhere in between.
(18:33):
Root Financial has not providedany compensation for and has not
influenced the content of anytestimonials and endorsements
shown.
Any testimonials andendorsements shown have been
invited, have been shared witheach individual's permission and
are not necessarilyrepresentative of the experience
of other clients.
To our knowledge, no otherconflicts of interest exist
regarding these testimonials andendorsements.
Once again, I'm James Canole,founder of Root Financial, and
(18:57):
if you're interested in seeinghow we help our clients at Root
Financial get the most out oflife with their money, be sure
to visit us atwwwrootfinancialpartnerscom.
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