Most people entering the retirement phase of life start questioning when they should collect social security benefits. Should they collect at the age of 62, immediately upon eligibility? Or should they hold off longer to collect more monthly?  Just like every other aspect of individual or family finances, planning for social security is very personal. What may work for one person may not work for the next.

There are two concrete factors that can tell you exactly when to start collecting social security:

  1. How long you’ll live.  
  2. How much you will need to live comfortably until then.

Easy, right? Not quite. If your crystal ball is a bit murky, stay calm!  There is a way to gather clarity and plan around the unknown.

First, let’s get real about some numbers. Some of my clients express concern for leaving money on the table by not taking social security soon enough. Instead, I encourage them to turn their focus — what would it look like to live comfortably for as long as needed?    

Table: Example cumulative Social Security benefits through various ages

If our crystal ball could tell us for sure that we’ll live past 80 years, it’s clear how waiting would be beneficial. However, the ball is murky, and life is life. There are considerations like expected and unexpected medical expenses, inflation and family needs that may come into play. While some situations can be planned around, you may need additional income for expenses that could come as a surprise.

The most reliable factor to consider is how much you’ll need to live comfortably. When we discuss social security with our clients, we start there and then talk in depth about what is needed now versus what will and won’t be needed in retirement. We also consider medical situations, family structure, necessary comforts and their overall vision of what retirement will look like — while factoring in some cushion for the unexpected.

I work off the following equation to get a little more purposeful with the plan:

[Current net take-home pay]  – [expected expense drop-off in retirement] + [added expenses in retirement (including health care, entertainment, etc.)] = [retirement monthly income] / [1-effective tax rate] = gross monthly needed income.      

While it’s impossible to answer exactly when you should start collecting social security, with proper planning, you can come pretty close. If you’re unsure, contact your financial advisor to discuss your vision for retirement and the possibilities. Then put your feet up and start dreaming!

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