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When Should You Start Withdrawing From Social Security?

When Should You Start Withdrawing From Social Security?

October 04, 2021
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As you inch closer to your golden years, you'll likely start thinking about how to take care of your financial needs as an older adult. Social Security may prove a significant help, but you must have a withdrawal strategy to make the most of this social insurance program. We want to help you ease into retirement with peace of mind and financial security. Learn how to time your withdrawals.

Understanding FRA

According to the Social Security Administration, in 2019, roughly 6 million people received newly awarded social insurance benefits. That doesn't mean all recipients were of full retirement age (FRA). By waiting until you reach FRA, which depends on your birth year, you can claim full Social Security benefits. Currently, if you were born in 1955 or later, your FRA may fall anywhere between 66 and two months and 67. Those born before 1955 currently qualify for FRA.

Early Benefits 

After consulting the SSA's latest retirement age and speaking with a financial planning expert, you may opt to receive early benefits. Say you draw your SS check as many as 36 months before your FRA. If so, you reduce your benefits by five-ninths of 1% for every month. Withdrawing benefits more than 36 months out from your FRA permanently lowers your benefits by five-twelfths of 1% for each month. 

Delayed Benefits

According to RegisteredNursing.org, by the time a person in the U.S. reaches 65, average medical costs total approximately $11K each year. By delaying your Social Security benefits withdrawals until after the FRA, you have access to more funds to cover those medical costs. Delaying benefits should qualify you for delayed credit.

For instance, a person born in 1955 with an FRA of 66 and two months could hold off on withdrawing benefits until 68. Because the person waited a few years after reaching FRA, she or he receives an annual 8% credit multiplied by two, which is the number of years the individual waited to start withdrawals. Waiting also increases the benefit by roughly 15% more compared to how much the person receives for withdrawing at 66. 

One advantage of waiting is that the benefits increase applies for the remainder of the individual's retirement. Also, the benefits boost acts as the foundation for future increases determined by inflation. Typically we do not recommend delaying benefits after age 70.

When deciding between withdrawing Social Security before, at or after FRA, talk to your doctor. You could have health conditions that prevent you from waiting as long as you may like. Consulting with a financial planner is also imperative before you begin withdrawals as your financial situation is greatly effected when you begin drawing SS and the timing will impact the trajectory of your financial future. 

Benefit Taxes

Other than your physical health and finances, consider taxes. Your adjusted gross income plus your non-taxable interest payments plus half your SS benefits equals your combined income, which determines whether you pay taxes. The more your combined income exceeds a specific threshold, the more you must pay in income taxes for your social insurance benefits, up to 85%.

You deserve to enjoy your retirement years and your Social Security benefits. For more financial insights at any age, reach out to Summit Wealth Group by scheduling an appointment with one of our advisors.