Deciding When to Take Social Security

The age you sign up could dramatically impact your retirement cash flow.


One of the biggest challenges of retirement planning is setting up adequate cash flow throughout your golden years. One way you can ensure that you will have a higher monthly income as you age is to hold off on taking Social Security. The longer you wait to claim your benefits, the higher your monthly income will be later. Here’s how to decide when to sign up for Social Security.

[See 10 Ways to Boost Your Social Security Checks.]

When to wait to take Social Security. For those who aren’t on disability, the age of eligibility for Social Security is 62. However, if you wait until you are 66, you will see an increase of at least a third in your payments. Wait until you are 70, and you will increase the payments you receive by 75 percent or more.

It is important to note that the Social Security formula ensures that total payments are the same, regardless of when you start your benefit. However, if you wait, you will see an increase in your monthly payments when you do begin taking your benefits. And if you can work longer and wait to take Social Security, you will spend more years paying into the system and further increase your benefit when you do finally start receiving payments.

You might be able to wait to begin taking Social Security if you have adequate cash flow to help you through your 60s. You can begin taking withdrawals from your retirement account or use passive income streams that you have built up to provide the cash flow you need until you can receive larger Social Security payments.

[See How Medicare Premiums Affect Social Security Payments.]

When you should take Social Security early. Of course, not everyone can wait until 70 to begin receiving Social Security benefits. In some cases, it might make more sense to begin drawing Social Security earlier. If you have been laid off and are unable to find a new job, you probably don’t have enough income to help you put off taking Social Security.

Another issue is that market conditions might make it imprudent to draw down your retirement account. If your tax-advantaged retirement account has been hit hard by a market drop, you might not want to begin taking distributions, especially if you are young enough that required minimum distributions aren’t yet an issue. Instead, you might want to begin taking Social Security benefits, in order to give your retirement portfolio some time to recover.

[See 10 Things You Didn't Know About Social Security.]

Deciding what to do. There is no hard and fast rule regarding when to take your Social Security benefits. You need to carefully consider the best age to sign up. If you want to ensure a higher cash flow after you are 70, you should wait to begin receiving Social Security benefits. However, you might end up needing to draw on Social Security before then. Consider your cash flow needs, and make your decision based on when you are most likely to need the money.

Jeff Rose is a certified financial planner and U.S. combat veteran. He blogs at Good Financial Cents and Soldier of Finance.