Jacob Duke: Deciding when to take Social Security might be one of the biggest questions that every retiree has to answer. And if you've been following me for some time, you know that I typically lean towards delaying your benefits in favor of using other tax planning strategies like Roth conversions or tax gain harvesting during the early stages of retirement. But that does not mean that everyone should delay their benefits at all costs. So in this episode, I'm going to explain and outline four different reasons that you can or should consider taking your benefits at 62 rather than delaying. And be sure to stay to the end because I'll tell you why I don't like using the famous break even analysis when determining the proper Social Security claiming age.
But first, if you're new here, welcome to the Retirement Answers podcast. My name is Jacob Duke. I am your host as always. I'm also a certified financial planner and the owner of River Tree Wealth, a retirement planning firm that helps people just like you plan smarter and retire better. Now, before we jump into the four reasons you should consider taking your benefits early, I wanna remind you that the updated 2026 important numbers data sheet is linked down the description below for you to go grab if you have not already, it's completely free and a great resource to use throughout the year.
Also, as we're going through today's episode, I'd love to hear your thoughts on this. Do you think that there are other reasons beyond what I'm gonna share with you that you should take your benefits at 62? And if you're on Spotify, you can leave me a comment or you can shoot me an email there using the email that's listed down below in the show notes. So I look forward to hearing from you. Let's go ahead and jump in.
The first reason that you might want to take Social Security early is the fact that you simply might need the income, right? Not everyone is in a position to delay social security. And while we talk about, you know, retirement from this landscape of, I've got a million or 2 or $5,000,000, guess what? Not everyone is in that scenario. So some people need to have income right away in order to meet their basic needs and Social Security, if you are 62 or older, is a great way to kind of fill that gap and make sure you have your basic needs taken care of before any other distributions from your portfolio.
So it's a great way to shore up and solidify your plan. But I wanna remind you here, this is only if you truly need it. If someone says, hey, I've got $400,000 saved for retirement and I need 3,000 a month, and I'm 63, it might make sense to take Social Security immediately rather than delay it so that there is at least some sort of income coming in. That means that we won't have to pull so much from that portfolio. And I'll get to more about a portfolio growth scenario here in number three.
But that's the first reason is you absolutely need the money. Maybe you don't need it from a normal income standpoint, but maybe you need to buy a new car and your assets otherwise won't allow you to. So you have to take out debt on a new car because that's just the nature of the way things are nowadays in our current markets. Great, maybe taking Social Security helps you fund that debt payment on a monthly basis so that you can get around where you need to go in that new car. So there are different reasons or moments that you should take Social Security early or at 62, and the immediate financial need or the immediate income needs in retirement is the first one.
The second reason that you might want to take Social Security early is around your life expectancy and or health concerns. So everybody knows their health situation better than anyone else. And you know what that looks like for you, you know any pre existing conditions or diagnosis that you might have, right? So you might have a good understanding of, hey Jacob, I'm probably not gonna make it to 90 or 95. Therefore, it might make more sense for me to take my benefits early, use what I can while I can and enjoy those because my life expectancy is a lot lower due to my own personal health issues.
Now, the other side of that is, hey, maybe your life expectancy for your entire family and kind of genetically over time is like Jacob, no one in my family has made it past 70, right? So I'm gonna take my benefits as soon as I can. That is another good reason to really evaluate and think through, hey, should I do this while I have the opportunity to? Now, not to say you can't be an outlier here and you might outlive anyone in your family, that's totally possible, but it's something to consider around your historical, your family's historical life expectancy, but also your own personal health circumstances as well. If you're age 62 or 63 or 64, and you're like, hey, I don't think I'm making it to 80.
Great, taking your benefits immediately might be the right answer for you in that scenario. Now, third reason you might want to take your benefits early or at 62 is because of portfolio growth concerns and or, you know, pulling too much from your accounts too early. So whenever we think about your portfolio, no matter how much you have, we all have this internal clock, but really it's related to once I have a certain amount of money, I get really worried. So for example, if you've got a million dollars saved for retirement and you're like, yay, I'm finally a liquid millionaire. I have a million dollars liquid that doesn't include my real estate.
Wonderful. I'm so happy about that. But then as soon as you spend some money in retirement, maybe market correction or decline there happens and now you've got 600,000, do alarm bells start going off in your brain? The answer is probably yes, right? Because now you have 40% less than you had, you know, however long ago it was that you had a million.
And so what you can do there is you can say, hey, what if I turned on my social security to shore that up and to fix that and actually pull less from my portfolio. So that's a great opportunity or time to take your benefits early is if you want to put less strain or less burden on your portfolio itself. Maybe it means you have to do that from the beginning, or maybe it just means you have to do that once a market correction actually happens. But what I want you to focus on here is that even if you intend to wait to 67 or 70, give yourself permission to take your benefits earlier if it's the right thing for you, regardless of what you might be giving up on growth of your benefits, right? Every single year, maybe they're going up by six to 8% depending on your age, but maybe giving up that increase on an annual basis of your benefits is actually a much better solution compared to drawing down more of your portfolio at the wrong times.
So the third reason to take it early or to think about taking your benefits early is to not put as much strain on your portfolio. And the final reason is to maximize your entire households benefits by thinking of this as one household as opposed to individual benefits. Because in some cases, when one spouse claims early, it can enable the other spouse to delay, right? Because you got at least some income coming in. And by delaying the survivor benefit for the spouse who claimed early would be that much higher, which when you think about this from a married couple, a total household benefit perspective over both of your lifespans, that might be the right option to where the surviving spouse ends up with a much higher benefit for them compared to what their own benefit is after spouse number one passes away.
Okay, so a couple things there. Number one is I wanna encourage you, do not think of your social security benefits, you know, if you're married as your own individual benefits. You have to think of this as a household benefit for everyone involved. Because whenever you consider spousal benefits and survivor benefits, your decisions around when you claim matter a lot. And by taking your benefits early, you might be giving up some of your spousal benefit for sure.
But maybe the greater good here is to take your benefits early so that your spouse can then delay their own benefits, which would actually increase your survivor benefits one day and thus create a better long term income for the surviving spouse. So whenever you think about your Social Security benefits in this comprehensive, this total household way, as opposed to just individualized, you start to see that sometimes claiming early doesn't always mean that you're leaving money on the table. Sometimes it means you're securing the best long term outcome for everyone involved. So those are the four reasons that you might consider, you know, taking your benefits early. But what I don't want you to do is focus solely on this traditional break even analysis that we probably all heard of.
And so the way it works is, is you take whatever your benefits would be at 62, and then you take whatever your benefits would be at 67 or 70 or whatever age you decided you might want to delay to, and then compare what age you would have to live to in order for you to catch up in total benefits by delaying. So normally the break even age for someone who's trying to decide between 67 and 62 is somewhere in the range of 82 or 83 years old. Okay, so on its face, this logic makes sense to most people, right? If I take it early and die before 82, then I won. I got more money than if I had I delayed it to 67.
And if I wait to 67 and live to age 90, that's the better option. The hard part with that is, you know, you have no idea how long you're going to live. We none of us do, we know we don't have that crystal ball, but we can kind of make educated guesses based again on number two that I mentioned, life expectancy, health concerns. But what I don't hear ever factored in on this analysis is what the net benefits are for you as an individual, but then also the total benefits for the life of the household for both spouses, as long as both people live. Going back to what I talked about there in number four, you have to view your claiming strategy as a household item if you're married rather than an individualized thing.
Because while it might make sense for you to take your benefits early because you might not live past 82, just using that example as the break even number here, it might make sense for you to delay your benefits to increase a survivor benefit for someone else who outlives you. So whenever you do the math on that, it's kind of it's very abstract and hard to actually look at. When you do the math on that, say, oh, well, yeah, I didn't get enough benefit compared to had I taken it at 62, but maybe my spouse who outlives me by ten years, they are going to end up benefiting that much more. In total, whenever we do the calculation correctly and thoughtfully, actually by me delaying my benefits to 67, I didn't get to see that, but my spouse did. And so therefore, the break even analysis starts to break down very quickly whenever you consider your entire household.
Now, next component of this that I want to layer in as well is the fact that if you take your benefits early and end up having to pay tax on 85% of those, which is the max amount of money that you can pay tax on your benefits, 85% is the most, you're actually not getting your gross benefit. You're getting some net number based on what your tax rate is, right? So if you're paying 10 or 12 or 22% tax rate on your benefits, 85% of your gross, technically your net number is a lot lower than whatever your gross is. And all these break even analysis are based on the gross Social Security benefit amount, but you've got to factor in taxes. So if you think about, hey, if I took my benefits early, and I was then forced to pay tax on 85% of that, let's just say forever, compared to if I delay my benefits, do some sort of other tax gain or Roth conversion or other tax planning strategies in that three to five year gap there between 62 and 67.
That then allows me to have a more tax efficient withdrawal pattern out of my accounts and lowers my RMDs in the future. By doing so, I then have less tax to pay on my benefits because I have less other forced income throughout the rest of my life. So when you think about it that way, you could take your benefits earlier. Absolutely. But the problem there is you could be paying taxes on those benefits in full forever, which ultimately yields lower benefits for you.
And then on the opposite side, if you delay your benefits, you obviously are increasing your benefit amount over time, but you're also increasing perhaps your net benefit amount after taxes because maybe 85% of your benefits are not taxable anymore. Maybe only 30% of your benefits on average would be taxable year to year. Okay? So that's why I don't like to use a traditional break even analysis because it compares things in an incomplete way. It only takes the gross amount at 62 compared to the gross amount at 67 or 70, and then what age you need to make it to before you actually benefit by delaying.
It does not consider things from a total household perspective if you're married, and it does not consider your taxes on those benefits and what your true net benefit to your bank account actually would be. So I hope this is helpful as you think about what's the right thing for you and your family and your situation, not necessarily as what you should or shouldn't do. Hopefully, this gives you some ideas and perspective around how you should think about it. So we've got different reasons that you might want to take your benefits early. And I also want to caution you from using that traditional break even analysis, because I truly believe that it's incomplete and doesn't consider all the different variables and factors that you need to be thinking about as you're claiming your Social Security benefits.
So if this was helpful, share it with a friend and also too, if you've been a listener for a while and are enjoying what we're doing here, please leave a rating and review there on Apple Podcasts or Spotify. It helps other people just like you find the show and learn from it and also be able to retire that much more successfully. So thank you so much for tuning in. We will see you next time. Hey, it's Jacob again, and I wanted to remind you that nothing discussed in today's episode is meant to be financial, legal, or tax advice.
Retirement Answers is for educational purposes only. Thanks for tuning into this week's episode. I look forward to talking with you again next week.