In this episode of Coffee with Brendan, Brendan discusses the crucial topic of when to take Social Security, focusing on the factors that influence the decision based on your birth year. He also addresses the break-even point and other considerations.
Social Security based on birth year
Full retirement age and benefit percentages
Break-even points for taking Social Security
Factors that influence the decision to take Social Security
Hi, and welcome to another edition of Coffee with Brendan. This one will be a quick one on something that's very important and that is when to take Social Security. Now as you know, you have one shot at taking Social Security and one to take it. So you want to make sure that you get this right.
So let's open up a pretty simple and straightforward way of looking at it, it all comes down to when you were actually born. And so the first up top here, if we zero if we zoom in on this, what this is pretty much saying is that if you were born 1954 or earlier, then you have pretty much what most people think of as Social Security, your full retirement age is age 66. And for every year that you take it after age 66, you get an 8% increase. And conversely, if you take it a year before 866, you get negative 6.25. And that goes down every year 6.25 Every year, you take it before 66. And, and again, conversely, it goes up 8% Every year that you wait. So that if you took if you were born 1954 or earlier, and you took it out at the earliest you possibly could age 62, you'd only get 75% of your full benefit. Similarly, if you took it out at the latest possible date, which is a 70, you get 132%
Then there's this funky area between 1954 and 1960, where your full retirement age is 66. And two months, 66 and four months, so on and so forth. And you can see that it goes the same vertex goes down 6.25 For every year, you take it before that full retirement age and up 8% for every year that you wait. And so you can see that right before age 6019 59, your full retirement age is 66 in 10 months, if you took it out as early as age 62, you'd only get 70.8%. And if you took it out as late as you possibly could, you could get 125.3.
Now let's take a look at birth years 1960 Or later. And so that's where a lot of us fall, and you get up, you get your full retirement benefit at age 67. For every year, you take it out before age 67, you lose 6% to a minimum of 70%. So if you took it at age 62, a full five years before, then you would lose five times 6% Or a total of 30%. So you'd end up with 70%. Or on the flip side, if you wait for three more years, you get an extra 24% Or one point or 124%. So that right there is kind of the over overall way to calculate this. And really again, it comes down to when you're actually born.
So the question that I get from everyone is well, doesn't it just simply make sense to take it out as late as possible? So I can get as much as 132%? Or as little as 124%? And the answer is if you can, then of course, that's what you should do. But for many of us, that's not necessarily possible. So you have to wait. And so what's the break-even? So, what that pretty much means is when can you take it before, waiting at the higher level actually catches up to the benefit that you already had, and surpasses it.
So let's take a look at if you were the bottom one here. So the bottom one here shows that if you were to take it at age 62 in this hypothetical example where this person has full retirement at age 67, and they take it five years earlier and get that 70% that 70% of their full retirement age, how long would it be that they would be ahead of the game over someone that would take it much later. So again, if you were let's take the two extreme examples. So if you were to take it as early as possible at age 62, you'd only get 2557 per month. If you waited and took it at age seven you'd get significantly more but just realize that you have to catch up for those eight years that this person at age 62 is taking it before you started collecting anything at that 4530. So all these years that you are collecting build-up, in the end, you have to overcome that before it actually makes sense for you.
So long story short what this is pretty much saying is that if you live until age 81, or longer then it makes sense to wait as long as possible. If on the other side, you were to live 81, l technically up till age 77, or, or younger then it would have been better for you to take it at 62. So what's the likelihood that you will live to age 70? The answer is, if you are a male, you have a 58% chance, so kind of a coin flip there. So I'll just leave it at that, if you're a female, it's age 67. And then this is if you're a married couple, if you're a married couple, there's an 87% chance that one of you will live 81 or 81 or longer. So to break this all down, if you look at it as just dollars and cents, and in black, very black and white, there's a probability, so higher than 50% chance that if you're a male, female, or even a couple, you will live to age 81 or later and thereby collect more and your social security than if you were to start taking at age 62.
But again, this all boils down to yes, that that's you know, that's the calculation that you run is you know how long you're gonna live, if you have a diagnosis that you know, you're going to pass away before that age 81, then it probably makes sense to start taking it sooner than later. But on the flip side, the likelihood you're going to live to age 81 or later is pretty high, relatively speaking.
But again, the key point is do you need that money, if you retired at age 62. And you had to start thinking about drawing from your investment portfolio to make up or to replace your paycheck, then in all likelihood, you probably want to take it out of the Social Security first, so that you could preserve the investments in the portfolio.
So you know, what I mean by that is, let's just simply take 2022, a lot of people's portfolios went down. The longer you wait from drawing on that portfolio, the longer you're leaving that account there so that hopefully it goes back up to where it was at the beginning of 2022. And so that makes the argument to take it sooner. So again, the simple answer to this question, if you're just looking at it on, you know, black and white, then it makes sense for most people to wait.
However, if you do need that money because you retired earlier, or just from a cash flow standpoint, you need the money, then it might make sense to take it a little bit, a little bit sooner. So hopefully this was helpful. I really liked this chart. And I think it does a really good job of kind of breaking this, this arcane science of when to take your Social Security down to a level that you can really kind of hold on to.
So I hope this was helpful to you. And that's our video for this month. We will see you next time. Thanks for watching
Brendan is the Managing Director for Waymark Wealth Management. He has extensive experience in comprehensive wealth management. His focus includes retirement planning, behavioral finance, investment portfolio construction, education funding, insurance & risk management, taxes, charitable giving, and estate planning. Brendan has an ability to take clients' complex visions and distill them down to simple action plans, helping them move from where they are today to where they want to be tomorrow.
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