When Should We Turn On Social Security Payments?

Fantastic question! Donna wrote asking about this earlier in the week, but I had the exact same discussion over coffee with a client yesterday. As with most government run programs, Social Security is anything but straightforward. With over 8,000 (yes...8,000!) filing possibilities for married couples, and a very short leash on making changes once you've filed, it's prudent to take some time and think this over. 

Most clients we work with come to us in one of two camps - either the "I'm turning this on as early as possible because I think Social Security will go away soon," or the "I want to delay as long as I can and get the highest payout." The correct answer, unfortunately (and no, I'm not just avoiding the question) is it's entirely dependent on your situation.

There are clear times when it makes sense for someone to turn on Social Security as early as possible (age 62). Perhaps they are retiring early but have deferred compensation that won't be available for a number of years, and they need income now to bridge the gap. Or they may have significant health concerns and don't believe they would live long enough to benefit from a higher payout in the future.

On the flip side, for some folks waiting makes a lot of sense. You receive an (approx.) 7% benefit bump for every year you wait to file, and someone still working late into their 60's might not need (or want) the extra taxable income until they stop actively earning. Further, with life expectancies increasing and the reality of inflation eating away at fixed income payments, starting at a higher payout could pay off over time. 

There are times that your situation will make when to file obvious, and often there is not a "right" or "wrong" decision - it really is just personal preference. But being educated on your options is critical. Please take the time to sit down with us or another financial planner you trust to take a deep look at your specific situation and let you know all the Social Security filing options that you have. For further study I recommend the AARP's social security page. You can also get a lot of good information on the Social Security Administration's website, though it can be dense.