At What Age Should Your Clients Take Social Security – and Why?

There are multiple schools of thought on when retirees should take Social Security.

Take the proceeds at 62, some say, and gain immediate access to reliable monthly income. Or, wait until age 67, or even 70, and watch that monthly income soar in value at a return you are unlikely to find anywhere else.

On average, U.S. retirees take Social Security payments starting at age 64, according to data from an AP-NORC survey, which tracked 1,075 U.S. adults aged 50 and older.

A separate study from Boston College’s Centers for Retirement Research states that 56 percent of men and 64 percent of women begin payments before their full retirement age – age 66 for those born between 1943-54, and gradually rising to 67 for those born in 1960 or later.

What’s best for your clients, and is there a possible “happy medium” somewhere in between 62 and 70?

“I've done a lot of projections for clients to determine which option makes more sense,” said Jon Sycamore, a financial planner with Physician Wealth Planning in Salt Lake City. “It really comes down to this: take the reduced benefit early, but receive it longer, or delay your benefit until 70 and receive an increased benefit for a shorter amount of time.”

Once you consider the cumulative benefit over time, there is a crossover point usually around the recipient's mid-80s, he added.

“Consequently, the determining factor becomes: How long do you think you'll live?” he said. “While that's unknowable, if you're in good health and have a family history of longevity, it would make sense to delay and receive the increased benefit.

“The opposite is true if you aren't in good health and don't have longevity.”

The Waiting is the Hardest Part

For average people, the actuarial answer is that you should delay as long as possible, said Geof Hileman, a health care actuary and Social Security specialist at Kennell and Associates in Raleigh, N.C. While there are myriad reasons for that sentiment, Hileman pointed to a calendar-based rationale.

“The credits for delaying retirement (and penalties for early retirement) were established by the 1983 Social Security amendments at levels that were actuarially appropriate at the time,” he explained. “Mortality rates have fallen since 1983, which has resulted in the formula essentially giving people too much credit for surviving additional months.”

Yet, as Hileman pointed out, most people aren't average.

“For beneficiaries with chronic health conditions or other indicators of elevated mortality, the best decision from an actuarial standpoint would be to take benefits as early as possible,” he said.

One final situation that merits mention is the interplay with spousal benefits.

“When one spouse dies, the surviving spouse continues receiving the larger of the two benefits,” Hileman noted. “As such, the lifespan of the lower of the two spouse's benefits is only as long as the first-to-die spouse. Thus, the higher benefit will likely last longer, which means the lower earner has less of an incentive to delay taking benefits.”

If your client does take Social Security cash out early, know the percentages involved in not waiting for a payout, said Lisa Featherngill, head of planning for Wells Fargo's Abbot Downing wealth management division in Greensboro/Winston-Salem, N.C.

“Depending on when you were born, taking Social Security benefits at age 62 can cost as much as 30 percent per year (and 35 percent for your spouse),” Featherngill said. “That is a big cut into retirement income.”

When a client plans to retire should also factor into any Social Security payout decision.

“If a client is planning on continue working to age 65, it’s normally in their best interest to delay filing until they reach their full retirement age,” said Tyler Boling, a financial advisor with Reed Financial Planning Services in Glastonbury, Conn.

Too Good to Pass Up?

When someone files at 62 and continues to earn income from employment, their Social Security payment is reduced by $1 for every $2 earned above $16,927 (in 2017), until they reach their full retirement age.

“But your full retirement age Social Security Benefit is permanently increased by approximately 8 percent every year you delay your filing past your full retirement age until age 70 (a 32 percent increase in benefits),” Boling said.

Citing data from the College for Financial Planning, he said the average “break even” in benefits received for filing early as compared to filing at your full retirement year is 12 years.

“Therefore, if your full retirement age is 66 and you're expecting to live beyond age 78, you are more than likely better off waiting to file for your benefits until your full retirement age,” he stated.

Also, if a client is planning on continuing to work beyond their full retirement age, they can file for benefits once full retirement age is achieved. They can continue to work and collect both their salary and their full Social Security benefit, Boling said.

As the experts all attest, each Social Security recipient’s own experience is unique, and a thorough discussion between advisor and client is highly advised on any payout age decision.

Yet by and large, it’s best to wait until as long as possible, given good health – that’s the way to maximize Social Security payouts now, and going forward.

Brian O'Connell is a former Wall Street bond trader, and author of the best-selling books, The 401k Millionaire and CNBC's Guide to Creating Wealth. He's a regular contributor to major media business platforms, including CBS News, The Street.com, and Bloomberg. Brian may be contacted at [email protected].

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