When should I start to take Social Security benefits?

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Q. I’m looking to retire this year and I want to make an informed decision on when to apply for Social Security benefits once I reach age 62. As I understand, there is a penalty on the amount one would receive if he starts at age 62 versus the full retirement age. How does this work? I was born in 1961.
— Still working

A. Yours is an excellent question.

Social Security is one of the most important retirement benefits out there, especially in a time that many of us do not have pension plans.

In times like these, it’s easy to see why having a guaranteed income stream — something that has no market volatility — is a great thing in retirement, said Jerry Lynch, a certified financial planner with JFL Total Wealth Management in Boonton.

For this illustration, we’re going to assume your full retirement age is 66.

At 62, your benefit is around 25% less than your full retirement benefit at age 66. It is also around 60% less than your benefit at 70.

“The break even generally is 78. This means if you take it at 62, 66, or 70, the numbers even out around age 78,” Lynch said. “If you die before age 78, it is better to take your benefit at 62, and if you live past 78, it is better to take it at age 70.”

“If you can tell me when you are planning on dying, I can really pinpoint the best plan for you,” Lynch said.

He said the average life expectancy for women is 86, and for men, it’s 84. This means on average, it is better to take the benefit at 70 rather than taking it early.

Even if you die before age 78, you need to think about your spouse, he said.

“If you pass, your spouse gets only one benefit, which is the higher of your two benefits,” Lynch said. “If you take yours earlier, and yours is the higher of the two, this will put your surviving spouse at a terrible disadvantage in her later years.”

Putting off your benefit to age 70, if you live long enough, can result in a hundreds of thousands of dollars difference, especially if you are a husband and wife, he said.

Every year you wait, on average you get an 8% increase in the monthly benefit, indexed for inflation, guaranteed for life.

“If I could get you a product that would guarantee you a 8% increase annually from age 62 to 70, that was indexed for inflation, guaranteed to pay you for life and backed by the U.S. government, how much of your money would you give me?” Lynch asked. “All of it?”

He said a happy retirement is all about cash flow and the greater the cash flow, the happier — and more secure — you will be.

It makes sense to make an appointment with your local Social Security office to compare your estimated benefits at different ages.

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This story was originally published on April 14, 2020.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.