If you start calculating and analyzing when to take Social Security, you may start by figuring out how long you’re going to live based off your family’s longevity, and multiplying your annual Social Security benefit for each year you might claim by the remaining years you’ll be living. Seems like a good start, right? Wrong. You’re already missing the forest through the trees. When deciding when to claim you also need to look at your investment assets, distributions and cash flow needs, earnings, etc. In some situations, you may find that it would be more beneficial to claim social Security at 62, instead of receiving your maximum benefit at 70 leading to less distribution demand from your retirement portfolio allowing for more growth and compounding.

Let’s explore this scenario a bit more. After you reach your Full Retirement Age (age at which your Social Security benefit is not subject to deductions), your potential annual benefit will increase at a rate of 8% until you reach 70 years of age. Often will see clients justify taking distributions from their retirement portfolio to meet their cashflow needs just to get those 8% increases in annual benefit for a handful of years. Sure, you’re going to likely maximize the amount of money you get paid by the Social Security Administration over your life, but you’re also putting the cart before the horse. Again, look at the full picture here. We need to be viewing your entire plan and the impact distributions from your portfolio has on your retirement plan’s success vs. claiming Social Security not and retirement portfolio distributions later. People forget that their assets are going to grow and compound over their entire life, and that early distributions have heavy consequences on future values of your portfolio. I don’t know about you, but I’d rather have a larger retirement portfolio for systematic and lumpsum distributions instead of a larger monthly stipend with a vastly smaller retirement portfolio.

Now, we’re not recommending that you should always be taking your Social Security benefit earlier instead of later. Quite far from it. What we’re recommending is to consider all the moving parts, look at the situation holistically, and when called for, utilize an expert on the subject matter to make sure you are making the best decision for yourself.

Find out more ways to maximize your Social Security at our class on 2/12/2024 taught by Gregory Holman, FPQP®