From a recent email I sent to a client:

One of the most common questions I encounter is when is it best to make your initial claim to start drawing your benefits from Social Security (SSA).

When I notice that clients are over 62 and thus eligible to make an early claim for their Social Security benefits, I wonder if they have considered doing that or are waiting based on the promise of higher payments by deferring their initial claim.  There is a lot of misinformation floating around on this topic, which I have a lot of experience with, for ourselves as well as for clients. For several reasons, it has always been my belief that it’s the best strategy to claim SS as soon as possible rather than hold off for what may very likely be much less money several years down the road.

In spite of the big PR push by SSA and some supposed financial wizards, delaying when you officially request to start receiving your benefits is a very unwise move.  There are lots of seminars and fancy software designed to make the supposedly scientific calculations as to when the optimal date would be from a financial perspective.  Those kinds of pure math calculations are bogus for a number of very important and valid reasons.

1. Life Expectancy – The supposedly higher benefits promised for those who wait to make their claim only make financial sense if you are 100% positive that you will live well into your 90s, just to break even with what you would have from an early claim.  Since that kind of guarantee is an impossibility here in the real world, it’s ridiculous to accept that premise as a sure-fire payoff.

2.  No Real Money in Account – Unlike the perception many people have that the SS taxes paid in are sitting safely in a trust account in DC, nothing could be further from the truth. Unlike true non-government retirement accounts, such as IRAs, unreceived SS benefits are not assets that can be left to others after your passing.  A surviving spouse can possibly receive some part of your benefits, but combined with her own benefits, the total will be much lower than what you had been receiving while alive.

3.  Changes In The System – As has been known for a long time, the huge number of Baby Boomers cashing in on their SS is draining SSA’s reserves so quickly that drastic changes are going to be required soon.  As has happened in past years, our Rulers in DC can modify the details of the SS system at any time they choose.  Some of the serious proposals being discussed in DC include:

A.  Raising the benefit eligibility age to 70, 75 or later so that more people will pass away before making their claims.

B.  Reducing the payout of benefits across the board to something like 50% to 80% of the current payment structure.

C.  Means Testing, where people with income and/or net worth over an arbitrary level will receive reduced or zero SS benefits, regardless of what they had paid in during their working lives.

All of these proposed changes are expected to be only applicable for new SS claimants, and not for those who have already begun receiving their SS benefits.  Any reduction in payments to current SS recipients would be curtains for any Congress-critters who vote for that, which they well know.

Bottom line, the only smart play is to take the SS benefits as soon as you are allowed, which is currently at 62.  That’s what Sherry and I have done and what I have been advising clients for decades. The old cliché “A bird in the hand is worth two in the bush” fits perfectly here.

Verify Recorded Earnings – Here’s a tip for you, based on what I had to go through.  Check your official earnings statement with SSA and see if they have included everything you earned in salaries and self employment income over your lifetime.  Unearned (not service) income, such as interest, capital gains, rents and royalties, are not included in the income that counts towards SS benefits. If you see any large amounts missing, start an appeal with them ASAP.  You should still apply for your benefits before your 62nd birthday, even if the earnings history has some gaps.  It took them a year and a half to correct some missing income from my records, but in the meantime I received monthly payments and then a very large retroactive catch-up payment when they finally made the proper adjustments.

Penalty on Too Much Earned Income – As has long been the case, the SS system has a penalty for those people who receive more than a certain amount of earned income while drawing their benefits prior to their full retirement age (FRA), which is 66 years and two months for you.  For 2020, this limit is $18,240.  SS benefits for someone under his/her FRA are reduced by 50% of the earned income over that threshold amount.  While this often scares some people enough to delay their initial benefit claim, this is super easy to avoid if you can adjust your income sources to be unearned kinds of income, such as rents or royalties, instead of W-2 wages.   This is a much easier task to accomplish when you have control over the business you are working in than if you were working for a huge entity.

I wanted to pass this along and hope it gives you some food for thought.  I realize it is very different from the current “conventional wisdom” that is hyping the delay for higher future benefits propaganda. My take is based on real world analysis of things, which includes the fact that all of those delayed calculations are based on living to a very ripe old age.  While that is something we all wish to achieve, we all know of examples where lives have ended all too soon and without any warning.

I have attached a Short summary of the rules for Social_Security_and_Medicare, which you will be automatically enrolled into this year when you turn 65.  I will be as well, and I am not looking forward to doing the research for which Medigap policy to sign up for.

Let me know if you have any questions about any of this.