3 things to consider before taking Social Security, according to a financial planner

Courtesy of Dennis Morton

Dennis Morton, CFP®.

• Financial planner Dennis Morton writes that a 2019 study of 2,000 Americans found 96% of them take Social Security at the wrong time.
• However, he writes, he's always skeptical of these patterns viewed in the aggregate. In his professional opinion, the right time to take Social Security doesn't always come down to dollars and cents.
• When considering the right time to start taking distributions, he suggests you know how much money you actually need to maintain your lifestyle, consider how you'll be using your other savings while retired, and look at any other income streams you might have.
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United Income released a study in 2019 with findings that 96% of Americans choose the wrong time to start their Social Security benefits.

With the option to begin guaranteed payments as early as age 62, more retirees are electing this premature option than should, according to the study. If someone elects to wait until age 70, for example, they would receive an annual benefit increase of 8% and that gain would be locked in as a guaranteed stream of income for the rest of their life.

The key takeaway from the study (that there is an optimal time for Social Security and most people do not choose it) is a worthy point to make, but I am always leery of financial decisions viewed in the aggregate. This particular study looked at 2,000 households and ran over one billion scenarios to calculate the right time to make the Social Security decision.

The problem is that the math of retirement income is only part of the story when making these kinds of financial calls. It is a very personal decision that can have a lot of subjective factors, too.

Before we ever get to ideas about maximizing income, here are a few ways to frame conversations around Social Security timing in your family:

1. Know what your income gap is and how best to fill it

Make sure you know what your expenses are in retirement before you think about drawing income. That way, if you do opt to delay Social Security, you know how much you will have to draw from other savings to meet your expense needs.

2. Be mindful of how your other savings might be needed throughout the course of retirement

Social Security provides an income stream, but it does not provide lump sums that help with larger expenses like home improvements, car purchases, or the potential for larger health-related bills towards the end of life. Be careful in spending down too much of your outside savings just for the purpose of maximizing Social Security. There should be a balance between the right amount in savings and the right amount of income.

3. Consider the balance between other streams of income and Social Security

A couple with pensions, a single person with substantial retirement accounts, or a business owner who just sold the family business might be living similar lifestyles but their decisions about Social Security timing can be totally different. That difference is due to how they will generate income in retirement. Take the time to learn how income can be created from all of your assets and then approach the Social Security conversation from your unique position.

The reason people often lack confidence around their Social Security decisions is because of what they hear from friends or because of what they read in an article. I can't count how many times I have heard, "My friend told me I need to do ______ for Social Security because that is what they did." This is one of many financial decisions that you can't make based on what someone else has done. The exact right approach for your friend regarding their retirement income could be the exact wrong approach for you, and the reasons are not always rooted in dollars and cents.

If you feel ill-equipped to figure all of this out on your own, schedule an appointment with your local Social Security office, and then meet with a Certified Financial Planner™. Take a comprehensive view of your income and expense situation. The financial industry does not do a great job of educating investors about these kinds of decisions, but if you do have a trusted adviser, he or she should make Social Security a part of your meeting agenda.

Dennis Morton Jr., CFP® CHFC® is the cofounder and principal of Morton Brown Family Wealth, providing financial planning and wealth management services to clients seeking to bring money and life into balance. He earned his Certified Financial Planner™ and Chartered Financial Consultant® designations and holds a life, health, disability insurance license. Dennis served as a captain in the United States Army and was awarded the Bronze Star for his service in Operation Iraqi Freedom.

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