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Knowing when to tap Social Security

money clock

By Joel Dresang

Several of my friends have retired since the pandemic. Some left work as they had planned, some not.

COVID-19 has triggered a perfect storm for retirements. Economists estimate that the retiree population has grown at twice the rate of pre-pandemic trends, resulting in millions more retirees who might still be working if not for COVID.

Some workers got pushed out by job losses, business closings, health concerns and conflicts with caregiving responsibilities. Some got pulled into retirement by sky-high valuations in their investments and houses, as well as windfall stimulus payments. By their calculations, it no longer was worth their while to keep working.

Typically, retirements slow during recessions, but the swift, severe COVID-induced contraction has been accompanied by quickened retirements, according to a recent Pew Research Center report. Pew analysis shows that of the U.S. population 55 and older, more than half is now retired; their numbers have grown by 3.5 million in the last two years.

Curiously, despite accelerating retirements, applications for Social Security benefits have been below their pre-pandemic pace, down 5% in September from the year before, according to analysis by the Washington Post. Even internet searches for Social Security benefits declined with the pandemic, according to a working paper at the National Bureau of Economic Research.

Part of the drop-off in Social Security applications could be diminished access to the agency during the pandemic as offices closed.

But the disparity between early retirements and Social Security requests speaks to the fact that for many retirees, it can pay to delay.

If you haven’t already, set up a free, secure, personalized Social Security account online https://www.ssa.gov/myaccount/

In my case, at 66 and 8 months (my full retirement age), my monthly benefit would be 29% fatter than if I would retire now at 63 and seven months. If I wait until I’m 70, the maximum amount would be 67% more than what I’d get now, a difference of more than $18,000 a year — for the rest of my life.

Myriad factors go into timing retirement. Deciding when to retire involves so much more than merely when to start receiving Social Security benefits. Still, Social Security plays a bigger role in retirement than most people realize.

Gallup poll earlier this year found that only 38% of non-retirees expect Social Security to be a major source of their retirement income, even though 57% of retirees said the benefits were indeed a chief resource.

More robust research, combining data from the Census Bureau, Social Security and the IRS, shows that 90% of Americans 65 and older rely on Social Security benefits, typically providing 30% of their family income, right behind pensions and IRA distributions, which made up 36% of family income.

Already receiving Social Security?
Through your personal online account, you can:

  • Get your benefit verification letter.
  • Change your address and phone number.
  • Start or change direct deposit of your payments.
  • Get a replacement Medicare card.
  • Get a replacement SSA-1099 or SSA-1042S tax document.

My back-of-the-envelope math shows that at the full retirement amount, Social Security would account for about 37% of my income, following retirement funds and other investments at 54% and a pension from a previous employer at 8%. That doesn’t account for further growth of our investments, so Social Security would figure smaller, but the point is it’s a sizable chunk.

Considering the significance of Social Security in retirement, it’s critical to scrutinize when to start tapping it. It can pay to delay, but circumstances vary, and putting it off isn’t the best idea for everybody.

“Deciding when to pull the trigger on your Social Security benefit is a tough one for many people,” Lisa Lewitzke says. “It forces them to take a hard look at their finances and their longevity — things people usually avoid.”

Based on years of experience helping clients consider the timing of Social Security in retirement, Lisa suggests five questions to explore:

  1. Do you need the money now? “Some people want to spend the early part of their retirement traveling or spending money on hobbies or entertainment while they are still young and feel healthy enough to do so,” Lisa says. One reason to file early for Social Security can be the expectation of lower expenses later in retirement.
  2. How is your health? Poor health is another reason some people take funds early, Lisa says, figuring they need the money for extra expenses or thinking they wouldn’t live long enough for delayed benefits to make sense.
  3. Have you saved enough? “If you are getting close to retirement and are realizing you didn’t put enough away, working longer than you expected may be a necessity to allow your benefit amount to continue growing,” Lisa says. Working longer also can let you put off tapping retirement investments for income.
  4. Are you married?Social Security states that historically, married women outlive their husbands,” Lisa says. “A wife taking her Social Security benefit early and then switching over to the larger survivor benefit when her husband passes could possibly net a larger total benefit, depending on ages and health.”
  5. Have you made a budget? “So many people have no idea what they will need in retirement,” Lisa says. “You need to evaluate how much you have saved and what you will need to supplement your income. Then you can start looking at where it is going to come from.”

When to take Social Security is a consequential decision, Lisa notes. It deserves thorough discussion with a trusted professional.

“Bottom line is everyone’s situation will be unique to what is right for them,” she says. “You should always talk to your financial advisor whenever you have a life change like this so they can help you navigate what will work best for you.”

Other Money Talk articles from Joel Dresang

I was born in the latter half of the baby boom, so I’m seeing more of my friends and former workmates retire. I have no plan on when I’ll join them. I hope to have a say on the timing, of course, but I know that not everyone has that luxury. Stuff happens, and often unpredictable other forces — health, families, employers — can prevail.

In the meantime, I’ll continue preparing for retirement, whenever it happens, and keep checking my secure online account at Social Security to weigh how my projected benefits figure into the future for me and my family.

Joel Dresang is vice president-communications at Landaas & Company.

Learn more
7 lessons from my Social Security Statement, by Joel Dresang
Working longer to fatten Social Security, A Money Talk Video with Lisa Lewitzke
When Should I …check my Social Security Statement?
When to start receiving retirement benefits, from the Social Security Administration
Benefits calculatorsfrom the Social Security Administration
Frequently Asked Questionsfrom the Social Security Administration
(initially posted December 3, 2021)

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