When To Take Social Security: A Question Of Cash Flow

One of the biggest decisions you have to make as you approach retirement is when you want to begin taking your Social Security benefits. Indeed, this is an important consideration. For the most part, it depends a great deal on what you think your cash flow needs will be as you age.

Do You Need the Cash Now? Or Can You Wait?

You can start pulling on benefits at age 62. However, if you start taking benefits as soon as you can, your monthly payments will be lower than if you wait. Indeed, your payments will only be 75% of what you would get if you wait until age 66 (which is considered the “full” retirement age by the government). And, if you can wait even longer — to age 70 — you see an increase of benefits by 8% each year between 66 and 70. There is no additional benefit for waiting beyond age 70.

Understand, though, that you aren't necessarily getting “more” in the sense that your overall total will be higher. Instead, the formula is worked out so that you should have roughly the same benefits over time if you start, no matter when you start taking Social Security, at age 66. The difference is that if you wait longer, the government will offer you a higher monthly payment amount to make up for the fact that you haven't been taking what you could for the past few years.
As you decide when to start taking social security benefits, you will need to consider your cash flow situation and any tax implications. If you are 62, and you need the money to help cover shortfalls in your tax advantaged retirement account, you might need the money now — even though you will be penalized for not waiting until the “full” retirement age. If you need the money to help you in your retirement, and you can't find other sources of income to help you, then taking Social Security earlier might be your only option.

However, if you can wait until later, it might be worth it. Later on, your expenses might increase as your health declines (and costs rise), or as your retirement fund starts to run a little lower. Being able to wait until later and receive more each month might be very helpful. If you can keep working in between, earning income and paying into the system, your benefit will increase as well. This can be a great help to you later on, when you might want a larger monthly income.

Bottom Line

Before you decide when to start taking Social Security, you need to consider your situation, and what you expect in the coming years. In some cases, you might be worried that benefits will be cut due to economic concerns and problems with the federal budget; in that case it might make sense to start receiving payments as soon as you can, in order to get what you can.

However, if you expect that you will receive your benefits as promised, you need to look at your situation. How much can you expect from various revenue streams, and your retirement accounts, and for how long can you expect to keep up the income pace? You should plan to take Social Security when it will most help your monthly cash flow.