I recently had a conversation with a client couple. The wife indicated that she planned to take her Social Security of $1,500 this upcoming October when she reached full retirement age. She and her husband are still working, but she wanted the money because she didn’t want to wait and wasn’t sure how long she would live.
She reasoned that since she was full retirement age there would be no reduction, which is true.
But she didn’t think through the full ramifications of how much she would get in October, versus if she waited until age 70 (when they were planning to stop working). Here was the difference…
Because they made over $200,000 as a couple, adding the Social Security benefit would tax it at a federal rate of 25%. This means that she would net $1,125 of the $1,500 per month.
If she were to begin at age 70 when she stopped working, there would be no tax on the Social Security benefit (at least in their particular case). Assuming cost of living increases of 2% per year while she delayed, her age 70 amount would be $2,100.
$1,500 now (really $1,125 after taxes), or $2,100 in 4 years……hmmm…..
I think I would take the latter, especially since she didn’t need the money to survive.
Keep in mind that if she did elect at age 66 instead of age 70, this smaller amount is permanent and would only increase by the annual COLA.
Don’t forget that even if you take Social Security benefits after full retirement age, they may still be reduced due to taxation if you make enough money (even if that income is your spouse’s!)
If you have any questions, Please feel free to contact me.
