Should I Take Social Security at Age 62?

[00:00:00] INTRO: Hi, I’m Ed Slott and I’m Jeff Levine. And we’re two guys who just love to talk about retirement and taxes. Look, our mission is simple to educate you the saver so that you can make better decisions because better decisions on the whole lead to better outcomes. And here’s how we’re going to do that each week.

Jeff and I will debate the pros and the cons of a particular retirement strategy or. With the goal of helping you keep more of your hard earned money. Yeah, but we won’t know which side of the debate we’re taking until we flip a coin winner of the coin flip gets to pick which side of the debate they want to argue.

And both of us will have to argue in favor of our respect positions, whether we agree with them or not at the end of each. There’s going to be one clear winner, you a more informed saver who can hopefully apply the merits of each side of the debate to your own personal situation, to decide what’s best for you and your family.

So here we go. Welcome to the great retirement debate.[00:01:00]

[00:01:02] Jeff Levine: Welcome to episode one of the great retirement debate. I am Jeff Levine with me ed slot ed. It is great to be with you today. And I am really looking forward to our first great retirement debate.

[00:01:16] Ed Slott: I’m excited about getting these critical topics out to people who are viewing or listening. These are critical issues for those heading into retirement already there, and even beyond to your beneficiaries.

[00:01:28] Jeff Levine: Yeah. We’ll be talking about a, a slew of issues related to retirement and sort of highlighting the pros and cons by arguing each side, but of. No decision is, or rarely is a decision. All pluses are all minuses and it’s just gonna be a matter of individuals weighing these decisions and pros and cons for themselves as to how they should act.

But simply knowing the pluses and minuses is a really important first step.

[00:01:56] Ed Slott: That’s true. And the big takeaways you’ll get from each of these [00:02:00] items, each of these debate episodes, you know, we may be debating aside. We don’t even agree on we’re gonna flip a coin, but the benefit to you is you’ll have a good list. You know, if you are thinking about making this decision, you’ll have the pros and cons. And as Jeff said, the pluses and minus. Benefits or drawbacks, and you’ll be able to formulate, which of these items are most important to you based on your own particular facts and finances and circumstances. And I believe this will help you make important financial decisions.

[00:02:30] Jeff Levine: Well, that’s certainly the goal. And over the course of, uh, over the course of time, ed we’ll debate things that may apply to some people, but not others. But today in episode one, We’re going to kick it off with a topic that applies to just about everybody and that’s social security. And specifically, we’re gonna start by debating, should I take social security at age 62? Ed, my topic means your choice for the coin flip. What do you want head [00:03:00] I’ll say or.

[00:03:00] Ed Slott: I’ll say heads, heads.

[00:03:02] Jeff Levine: All right. Heads. It is. We’re gonna flip a coin here and you’re listening. So you’re just gonna have to take our word for it that we’re flipping the coin, but we’ve got it.

And ed, it is heads. So what do you want to argue? Do you wanna argue today, uh, that you should delay social security beyond 62? Or do you want to argue, take it as early as possible?

[00:03:20] Ed Slott: Oh, I got a break on this first episode because I would always say not always, nothing is always, but I feel more comfortable holding off till age 70 when you get the highest.

[00:03:30] Jeff Levine: All right. Well, thanks very much. I will then take the, uh, the side of the argument that says, take it at 62 and I’m gonna start with my potentially biggest argument, which is, I don’t know what the future holds. Ed, what if I die at 63? What if I die at 64? What if I die young?

[00:03:46] Ed Slott: Let me stop you there. If you die at 63 at 64, you’re dead. You won’t need it anymore.

[00:03:51] Jeff Levine: Yeah, but think about all the money I would’ve left on the table. If I had delayed taking social security until let’s say full retirement age, [00:04:00] somewhere between 66 and 67, or even as late as 70, I might not get anything. If I wait until 70 and I die at 69, there’s no back check that my airs get for nine years of missed payments.

[00:04:14] Ed Slott: That’s true. And it always is going to come down to your best estimate of when you’re going to die. Sorry to say. I mean, it all comes out. Even social security actuarily has this figured out. I don’t know what the actual break even day, uh, year is. Age? Uh, I think it’s 83. Is that about right? 82, 83? What, what is?

[00:04:35] Jeff Levine: Yeah, roughly somewhere in there depends upon the individual and when they’re full retirement ages and all their benefits, but yeah, usually you have to live to about 82, 83 to see a crossover benefit.

[00:04:45] Ed Slott: Right. So that’s really the question. Do you want smaller checks for a longer period of time or larger checks for a shorter period of time, but if you hit break, even you will break even. Uh, but if you live [00:05:00] hopefully a long and healthy life, then you’re going to benefit from those extra years.

[00:05:06] Jeff Levine: Yeah, I, I, well look, most people end up doing that and most people do end up taking it early. Uh, in fact, there’s research from social security and we can put, a link to this in the show notes that talks about how more than seven in 10 people, more than 70% of people. Are taking social security, uh, before they hit 64. So maybe not as early as 62, but pretty early well before full retirement age, and one of the reasons they may be doing it is that they may need that income. You know, unfortunately there are a lot of people we’ll talk about a lot of topics that on this show that applied to, uh, people of all different wealth spheres, people with right less wealth people with more wealth. But those who work kind of the typical blue collar jobs, the, the physically demanding jobs, they tend to need to retire sooner because they [00:06:00] can’t work anymore. They’re physically not able to. And if you’re not able to do that well, social security may be your only income stream.

[00:06:08] Ed Slott: Right, so then obviously I agree with that because if you need the money, you have to take it, but then you are also, uh, locking in lower checks for the rest of your life. One option is if you really needed the money and you were fortunate enough maybe to have an IRA, you’re better off taking from your IRA, even though those distributions are taxable. If you needed the money, you’d probably be in a much lower bracket and, uh, IRAs are, you know, a hundred percent taxable. Whereas social security, at most is only 85% taxable, but you may do better. I think you would do better, tapping your taxable IRA at low rates for those years, 62 to 70, and then, uh, your RMDs at 72 will probably be lower because you tapped in earlier and then you can, uh, have the larger social security check [00:07:00] take over at age 70.

[00:07:01] Jeff Levine: Yeah. So let let’s break down some of what you were just talking about. Cause there’s a lot to unpack there, ed, for, for those listening today. So first off as hopefully most people know if you take social security early at 62, you will have your monthly benefit reduced. At full retirement age, which varies depending upon your ear, your year of birth. And we’ll put a link to that, uh, site for social security in our show notes as well. Uh, depending upon the year you were born, your full retirement age is likely to be right now, somewhere between 66 and 67. If you take social security early for each month, you claim early, there’s kind of like a penalty. If you will. Then at full retirement age, you get what’s called your UNUC benefit effectively, your full social security benefit, but that’s not the biggest benefit that you could get. Because if you wait beyond your full retirement age, you get an 8% increase per year or one 12th of 8% per month that you wait beyond your full retirement [00:08:00] age. You see your payments for life automatically increased by that amount. In addition, ed, you referenced RMDs there. Of course you were referring to required minimum distributions,

[00:08:09] Ed Slott: Right, right.

[00:08:10] Jeff Levine: The requirement that once you hit 72, you must begin to take distributions from your IRAs. Which can increase your income and cause other sorts of tax impacts, whether it raises your Medicare part B premium or increases your tax bracket, etc.

So, a lot to unpack there. But , I think one of the other issues I would point to here is that is, is actually echoing a thought that you made, but looking at it from the opposite side, which is, if i don’t if I take my retirement dollars and I delay social security, that means i’m burning down my retirement assets, my liquid assets, the things that I could leave to an heir or that I might use the assets later on in my life. Whereas if I take social security early, That means I can leave maybe more of my IRA or [00:09:00] 401k or other assets invested for the long run. And if something happens to me, those assets do get past the heirs. And if I can let them grow, then they are available later in life for me. Well, here’s what I would say to that.

[00:09:11] Ed Slott: If you need the money, that would be the only reason. If somebody came to me and said, should I take it early? And they absolutely need the money. If you need the money, you shouldn’t be worried about your heir. They’re gonna get whatever is left. They’re an afterthought. If you need the money, you have to take your take care of yourself first. And if you need the money, you’re better off taking from your IRA. Don’t worry. What you’re going to leave to your kids. Take from your IRA, uh, because you’ll have a much lower tax. Bill, because I’m assuming if you need the money, you’re probably in a lower bracket and then you can get that much larger. You can lock in a larger check. If you hold off on the social security till age 70. Yes, you’ll have a lower IRA, but that’s lower taxes you’ll have going forward. While you’ll have social security now, uh, it could be that if you’ve [00:10:00] taken down more of your IRA during your lifetime, maybe your income would be low enough with RMDs. Those required minimum distributions that less of your now locked in largest social security check, actually largest, uh, uh, 70. It doesn’t go past that. That’s your lock in less of that will become taxable due to increased income. If you, um, Have a larger IRA because you held off your RMDs could be larger and that could trigger taxation of, of your social security or higher taxation. But to one of your other points, Jeff, you said if I need the money and again, I think we both agree if you need the money, you have to take it. And there are no alternatives. But if let’s say, uh, I’ll talk about another penalty you didn’t mention. Let’s say you need the money. You take social security early, but you still need money and you get a job at 62. What happens then?

[00:10:54] Jeff Levine: Well, if I make too much, they withhold my social security and it’s like, I never claimed in the first place.

[00:10:59] Ed Slott: And that’s gone. [00:11:00]

[00:11:00] Jeff Levine: Well, if you live long enough, if you live, let’s say until full retirement age. Yeah. They effectively will add back those dollars. Right. It treats it as though you hadn’t claimed it, but yes, you’re certainly not getting social security for those months.

[00:11:13] Ed Slott: So if you need the money, obviously you have to take it, but you should look for other resources. If you do have traditional IRAs, I always say you’re better off in your sixties using your IRAs. Not before sixties at 59 and a half. There’s a penalty if you tap it too early. But you’re better off using, in my opinion, I’m taking that side of the argument and I’m glad I’m taking that side because many times on these debates, you’re going to find, uh, based on the flip of the coin, we’re taking a side we really don’t agree with, but that’s your benefit. We’re arguing both sides of the coin here. Uh, but, uh, that’s the side I would’ve argued anyway, to hold off to lock in the largest possible check, uh, given today’s life expectancy, you could go into your nineties. I’d rather you have a check, a larger, a larger check locked in at age 70 for the [00:12:00] rest of your life.

[00:12:00] Jeff Levine: All right. Well, I’m gonna, I’m gonna hit on that for a moment by delaying you a larger check down the road. Like at some point. I’m not gonna be traveling as much anymore. I’m not gonna be doing the things, right. Like in retirement, we often hear people refer to as the three phases of retirement to go go years, your slow years, and then sadly your, your no go years.

Right. And so what, what do I care from getting a bigger check when I’m 85? Like who really cares, cuz I’m not gonna be able to enjoy it at that time. Whereas at 62, you know, I, 62 63, 64. Hey, ed 62 is the new 42. Right? So , so with that in mind, maybe I’d rather have that income, even if I don’t need it. Right. Even if I do have these other assets that I could tap, maybe I’d rather take that social security now, you know, if it means a lower check later in life who cares, cause I got more money, more income at the time of my life when I could enjoy it more.

[00:12:57] Ed Slott: All right. Here’s where all of you will benefit [00:13:00] from, uh, Jeff and I doing this great retirement debate. Our age difference probably around 30 years. Jeff has just described the mantra for maybe his generation Yolo , uh, you only live once, spend it now and don’t worry about the future.

[00:13:17] Jeff Levine: That’s right.

[00:13:18] Ed Slott: Uh, but I’m with my generation, the baby boomers, maybe more of you, uh, listening here now. And. Everybody wants a larger check. So watch you don’t spend it on the things you can’t do as many things. There’s other things you will need that money.

[00:13:35] Jeff Levine: All right. Fair enough. Maybe some generational differences. I’m also forced to make this argument. I must point out once again. uh, ed, what any other key insights you have as to why someone should not take social security at age 62?

[00:13:50] Ed Slott: It’s simply to lock in the largest possible check for the longest period of time. And I believe that’s by holding. If you can, Jeff makes a good [00:14:00] point. If you can, till age 70 and lock that in now, Jeff, a point you didn’t make, uh, which I’ll go on your side, but I don’t think it’s a big point, but I’ll, I’ll throw one on your end of the

[00:14:11] Jeff Levine: Yeah throw me a bone. I got a hard argument here to start,

[00:14:14] Ed Slott: Right, right.

You see, I saw a story. I mean, you see it every day, social security’s going bankrupt. So get it while you can back to your Yolo argument.

[00:14:23] Jeff Levine: That’s right. Get it while you cause right now, if we do nothing and, and that’s a fair, I was gonna, I was gonna to, to bring that up here at the end, but I, I appreciate you, you raising it , right? Social security is currently scheduled to go. Now in fairness, not bankrupt, truly in the sense that it won’t be able to pay anything, but benefits are only scheduled to be about 75, 80% of what they’re promised beginning in about 10 years or so. And so do you want to count on our politicians creating this fix at the last minute as they often do or, are we likely to continue to see a lot of what’s going on today [00:15:00] in our political climate, which is no compromise on anything, no matter what it. Right. And

[00:15:07] Ed Slott: here’s another benefit of the generational difference. I’m not worried about that because, uh, no politician, it’s the third rail is gonna touch social security for people of my age, who vote. They’re not going to touch it. And you know what I paid in all those years, let the kids and the grandkids behind me let them pay in. And, uh, they’re on their own. .

[00:15:31] Jeff Levine: All right. Well, so now, now we really are on our own. See, now, you know, now I know why we want to YOLO.

[00:15:36] Ed Slott: Yeah, yeah. Right. No, I, I admit it that way, but really, you know, if you’re looking at it from our, my age to baby boomers, we’ve been paying into this for most of our working years. Since the, the day I got that first check and just…

[00:15:49] Jeff Levine: yeah, but you’ve been paying in for other people and I’ll be paying in for you,

[00:15:53] Ed Slott: right.

[00:15:56] Jeff Levine: That still me. Unfortunately, there were just too many of you, ed. There’s just [00:16:00] so many darn boomers that we’re gonna run outta.

[00:16:02] Ed Slott: Oh, I know. So I’ll wait till 70, but you keep paying in for me, Jeff. I think that’s so, so great of you in the generation below me.

[00:16:11] Jeff Levine: I am happy to do it. It’s it’s it’s my, my. My privilege that’s uh, well, and I’ll give you one more, uh, ed and, and I, and I’ll, I’ll make, uh, you know, you were so kind as to throw me a bone, I I’ll make, uh, I’ll make an easy argument for you if you’re the lower earner. So already I know where you can go here with another argument, but if you are the lower earner of a married couple claiming it’s 62 can be pretty beneficial as well, because there. Either you or your spouse die young. That becomes a good decision because if you are the lower earner, when whoever dies first dies. So too, does your lower check, right? So if you are the lower earner, it’s really not a matter of when will I die. It’s a matter of when will I or my spouse die. And [00:17:00] while mathematically and actuarily, we could say, well, if you live to 82 or 83, It actually, if you’re married couple, most couples, the lower earner probably shouldn’t wait until 70 because it requires both people to live a really long time in order for that decision to pay off.

So maybe 62 is, is early and I’m forced to make an argument

[00:17:18] Ed Slott: that’s too early, but maybe if you’re in your late sixties, that argument could hold water. Uh, for example, if spouse is older than you, like you.

[00:17:27] Jeff Levine: Yeah, right. Because at, at, at the first death, that higher check will live on with the survivor,

[00:17:32] Ed Slott: right.

[00:17:33] Jeff Levine: No matter who it is. And so the lower spouse, like when people come into my office, right? You, you talk about like real office situations. When people come in and they’re kind of set and they say, well, we really wanted to start taking social security. I always say, if you wanna play with one of them and get it early, use the lower income spouse, like have them take it early and let the higher spouse be the one to delay.

[00:17:54] Ed Slott: All right, these are all good arguments. I still stick, uh, stick to my guns, get the largest check for [00:18:00] the longest period of time, but not everything’s for everyone. So, Jeff, I want you to explain how each one of these episodes are going to end that you have to make your own decisions. We hope we gave you all the information, the pluses, minuses, benefits, and drawbacks, and all the considerations to make the best decision. Remember, this is a long term decision. There’s no going back on that. So it takes a lot of.

[00:18:23] Jeff Levine: You’re right. And, and that’s why we say there are two sides to every coin, but your life, your retirement decisions are too important to leave up to a coin flip. And so the one thing that ed and I always agree on is that you should make sure you’re discussing these important decisions with a knowledgeable financial advisor or tax professional so that you can weigh the pros and cons of the different options against your specific goals and circumstances. Now, ed and I would love to hear from you what’d you like. What can we do better? Do you have a thought on why you should take social security earlier later we didn’t mention, or a [00:19:00] particular point you thought was, uh, that important or you just have a topic for us for a future debate.

Again, we’d love to hear from you. You can reach out to us on Twitter, reach out to ed at @theslottreport. That’s at the slot with two Ts report and you can reach out to. Using the, handle @CPAPlanner. Again, that’s @CPAPlanner. Uh, we thank you for joining us. We look forward to this project. We’ve got a lot more topics lined up, uh, for the future. And I sincerely hope that you’re able to make better decisions because of some of the information you’ve learned here today and in our future episodes, ed, this was fun. I look forward to doing this again real soon. Thanks so much.

[00:19:39] Ed Slott: All right, Jeff, we’ll see, on the next episode of the great retirement debate!