Boomers are smack dab in the middle of eligible retirement age facing a decision about when to draw from Social Security. There is no such thing as a one size fits all decision tool. For example, if both partners in a marriage are at an age for drawing Social Security and one partner passes away, the surviving partner is eligible for the higher of the two original incomes.
What if you want to draw Social Security and continue to work part time? This is definitely something to think about, because there is potential for a reduction in the earned benefit you would be receiving if your income from working part time exceeds $18,240.
What if you are a disabled veteran in receipt of a service connected monetary monthly benefit? The basic rule is a recipient isn’t allowed to double dip. In other words, the beneficiary will receive the higher of the two monthly income benefits but not both. Usually the way this works is if Social Security income exceeds the VA benefit, the veteran will only receive Social Security. If the VA benefit is higher, the beneficiary will receive Social Security and the VA will augment to make up the difference. For example if a veteran is permanently disabled at a condition rating where the veteran is receiving $1,200/month from VA and is eligible for Social Security at $1,050/month, the beneficiary will receive the total $1,200/month ($1,050 from Social Security and $150 from VA). What if the veteran’s disability rating results in monthly income greater than the Social Security early retirement figure? That would amount to an easy decision to wait until full retirement or delayed retirement (whichever results in a figure greater than the VA benefit).
For most people, the first order of business might be to gain a clear picture of the basics. For those of us born during/after 1960, eligibility for early retirement is age 62 and full retirement is age 67. There is also a different monthly income figure for people wishing to delay drawing until age 70. One way to help analyze the decision for when to draw Social Security is to determine at what age would a person be when the amount drawn from early retirement vs full retirement is the same.
Let’s say for a person born 1960 and later, the figure for drawing early from Social Security is $1,120/month. Waiting another 5 years for full retirement and drawing at age 67 would generally be 30% higher at $1,600/month. For every year after, up to age 70 (3 more years) a delay would amount to 108% for each year’s monthly income over age 67. e.g. delaying to age 68 your income would be $1,728/month. For age 69 it would be $1866/month and age 70 (maximum) would be $2,015/month. These differences, as a person ages seem to indicate some advantage for waiting for full retirement or even delaying drawing SSI until age 70, but is it really an advantage? Knowing how all the facts line up before making the decision to draw makes good sense. Using the figures above we can analyze the facts using basic algebra in the following example:
What we want to know is the number of years before the amount drawn at full retirement age of 67 is the same as the amount one would have drawn starting early at age 62.
Draw at 62: $1,120/month = $13,440/yr
For years 62-67 amount drawn = $67,200
Draw at 67: $1,600/month = $19,200/yr
Let x = number of years before amount drawn is the same.
First 5 years:
Early = $67,200
Full = $0
Variables:
Full = $19,200x + $0
Early = $13,440x + $67,200
Formula:
$13,440x + $67,200=$19,200x
$67,200 = $5,760x
$67,200/$5,760 = x = 11.666
The dollars cancel, leaving 11.7 years, so the retiree’s age would be 78.7 years old before the amount drawn is the same. To calculate your own figures, just plug them into the template above. You can also assess the advantage or disadvantage if you delay beyond age 67.
As mentioned above, there is no one-size solution for these decisions. An individual’s health and longevity will play heavily into the equation.