The Best Age to File for Social Security and The Top 7 Things to Consider


Troy Sharpe:  What is the best age to file for your Social Security benefits and what are the top seven things that you should consider when making this decision?

Hi, I’m Troy Sharpe, CEO of Oak Harvest Financial Group, host to the Retirement Income Show and CERTIFIED FINANCIAL PLANNER™ Professional (CFP®). According to a  recent study, 96% of people make the wrong decision when it comes time to elect Social Security benefits. These seven things that we’re going to go through and explanations for them will  help you understand when’s the right time to take Social Security for you.

The first one is longevity. Most people underestimate the longevity, advancements in science, technology,  medicine. We will probably live longer than we are expecting but if you also have longevity in your family then you should consider deferring Social Security as long as possible for a couple of reasons.  One, from your full retirement age which is 66 or 67 for most of you until age 70, if you defer it, your benefits will increase 8% per year  until age 70 and you will have cost-of-living adjustments from that higher number throughout retirement.

Also, when one spouse if you’re married, predeceases the  other spouse, the smaller check goes away, the bigger check remains. Deferring the Social Security check till age 70 won’t just benefit you, it’ll benefit your surviving  spouse to have a higher income when one cheque goes away.

Number two, health. The longer you live, obviously, typically the healthier you are, but the healthier  you are means you will have more medical expenses in retirement because you’ll have prescriptions, co-pays, deductibles, out-of-pocket costs, insurance premiums not to mention the  likelihood of long term care or home health care or assisted living. The longer you live, medical expenses do not go down, they actually go up which is somewhat counterintuitive initially  but taking Social Security at 67, 68, 69 or 70 can help offset some of these expected healthcare costs later in life if you live longer  because either longevity or you’re in good health. Consider deferring it.

Now, risk tolerance. Take into consideration your risk tolerance. If you are comfortable investing in the stock market, the  stock market historically, although not guaranteed, should we turn somewhere between 7 to 11%. If you’re comfortable having your money in the market, you don’t need to take it out of your  portfolio to live on, in that instance, it might make sense for you to take Social Security sooner. This way you have that income to live on and you can allow your investments to grow.

Conversely, if you’re a conservative investor and you don’t want any of your money in the stock market, you probably should live off savings that are earning 0%, 1% maybe 2%  and let Social Security increase because there is a big increase by deferring it not only from 62 to full retirement age but again, 8% from  66, 67 until 70. Your risk tolerance is a factor when making the Social Security decision.

How much other assets do you have? How many other assets do you have? If you have  a lot of other assets, this should help dictate what your Social Security decision is. That plays into as well, I’m going to skip down to number 6 here, your legacy  wishes. If it’s important to you to leave money to your kids or your grandkids or maybe Church or your charities, taking Social Security a bit earlier could preserve the amount of assets that you  have, your other assets here, allow them to grow and to be invested while you live off Social Security income. Your legacy wishes should play into when  you take Social Security.

Skipping back up to number 5 here, if you plan on working in retirement, you should not, I repeat, you should not take Social Security  prior to your full retirement age. There is an earnings test, currently it’s around $18,000 in 2020. Every $2 you earn above this  $18,000 earning test limit, they’re going to take one dollar of your Social Security away if you elect it prior to full retirement age. If you plan on working, you should not take Social Security  earlier.

Look up the earnings test, there are a couple of different rules there. If you turn full retirement age in this year, the earnings test is much higher, it’s around $48,000. Those numbers aren’t  exact but look it up and learn about the earnings test if you plan on working and taking Social Security prior to your full retirement age.

Number 7 here is tax  planning, are you going to do Roth conversions? Are you going to take money out of that tax infested retirement account and put it into a tax-free account? If you’re going to do this, you may want to defer Social Security  because that income will increase your taxable income which then may limit how much you can convert to a tax-free Roth IRA before you jump in the next bracket.

Now, of course, Roth conversions there is an entirely different strategy around those that is very nuanced and has many considerations as well. Electing social  security, tax planning absolutely comes into play because you could be taxed to 0% on your Social Security benefits if you have an excellent tax strategy of  distribution from your various accounts for a good amount of time in retirement.

All these considerations come into play when it comes to retirement planning. I want you to subscribe to the channel so  you can stay more connected to your money and hit the thumbs-up button to like the video. I’ll see you next time.