8 Critical Questions to Ask Before Collecting Social Security Income

If you’re like us, you’re contemplating retirement and dreaming of life with no early morning alarms or long commutes to the office.

But along with those plans for travel and goals for taking up hobbies you never had time for should be some intense and reality-check financial planning. Part of that planning will undoubtedly include when to begin collecting Social Security income.

What You Should Know About Social Security

While most people understand the basics of Social Security income, many don’t really understand the details.  

One common misunderstanding is that your Social Security benefit will be enough to fully fund your retirement. That belief is untrue, and the reality is that it was never the goal to do so.

The Social Security program was always intended to supplement other savings so that a stress-free retirement could be possible.

But in spite of its intention of supplementing income, for about half of older individuals, it still comprises more than 50 percent of their income post-retirement.

According to 2023 calculations, the average monthly Social Security income is $1,827, or just under $22,000 a year.  Increased costs of living  means that most of us wouldn’t be able to live on Social Security income alone.

That’s why it is key to run the numbers and truly develop a sense of understanding of needing to supplement retirement savings early in life so the later years can be truly enjoyed.  

And while the average benefit is depressing enough, it’s important to know that the maximum benefit may not be as comfortable as you would like either. If you begin collecting Social Security income at full retirement age, the current maximum payout is $3,627 monthly. It means you would have had a very high level of earnings throughout your work years to qualify and claim at age 66 to 67.

The absolute maximum monthly benefit that someone can receive in 2023 is $4,555. That option is only available if  you waited until age 70 to begin collecting Social Security income benefits and have been classified as a high earner for 35 years to receive this amount.

There are a lot of sources about whether you qualify to collect Social Security income (which requires 10 years of work or 40 work credits), whether payments are subject to a cost-of-living adjustment annually, and how much payments vary based on aging you are when you claim your payments.

Consider the payments and payout scenarios by doing a bit of accounting homework.  Social Security makes it easy by providing a worksheet calculator.

Is Social Security Really in Trouble?

While opinions vary, the statements by financial institutions and government alike seem to suggest that the widely held belief that Social Security is in deep trouble is somewhat (but not totally) untrue.

The reports saying that it will go bankrupt in 10 years is based on the reality that the Social Security Trust Fund will run out of money in 2034.

However, before you panic, know the primary source of Social Security is payroll taxes on active workers. The Trust Fund has only supplemented this amount.

So, essentially, to put minds slightly at ease, as long as there are people in America who are working, there will be incoming revenue for Social Security.  However, it doesn’t mean that there is no cause for concern.

Reports indicate that unless changes are made, once the Trust Fund is depleted, benefits may drop to about 78 percent of current levels. The hope is that Congress will intervene with measures to preserve critical funding for the program.

On a worst case scenario, If no changes are made, the Social Security Administration estimates it can keep benefits at 74 percent of current levels until 2095.

Of course, the ultimate belief is that some changes will need to be made, although exactly what, when, and how remains to be seen.

Short and Sweet History of Social Security

In brief, Social Security was officially launched in 1935. The last time Congress overhauled the program was 48 years after its inception (in 1983). That year, the full retirement age was raised from 65 to 67. It also increased payroll taxes taken from workers.

Raising the full retirement age again (some are suggesting age 70) along with an increase in taxes could be under consideration.

So, with all that said, assuming that you have already checked your eligibility, when should you apply for collecting Social Security income benefits?

I am not a financial advisor, but I am a zealous retirement planner and meet with my banker regularly. These are questions we discuss regularly, and I’ll pass them on to you as considerations.

Remember, everyone’s financial situation is different so there is no such thing as one correct approach to planning for retirement and collecting Social Security.

Consider these 8 questions Before Collecting Social Security Income:

1. Do I need my Social Security benefits immediately?
   If money is tight and you are relying on this income, you can start collecting Social Security income benefits at age 62. By doing so, however, your monthly payoff could be reduced by up to 30 percent.

   If you wait until 70 to begin collecting Social Security income, you’ll receive 24 percent or more for the remainder of your life compared  to age 67.  You’ll also want to know your full retirement age (FRA) to fully calculate your benefits. 

   If you were born between 1943 and 1954 your full retirement age is 66.  This goes up by a couple of month per year until 1960.  If you were both born in 1960 or later, your full retirement age is 67.

2. Should I go ahead and begin collecting Social Security income now because I could receive less later if the program isn’t overhauled?
   The answer to this is that it depends.  The advantage is that you collect Social Security income benefits for a longer period of time.

   The disadvantage is your monthly benefit will be reduced.  The key question is your overall health and how long you expect to live. 

   No one wants to think about things like this, but it is an important aspect of your decision on when to start taking benefits.  The life expectancy for men reaching age 65 on April 1, 2023, is age 84.1. For women reaching age 65 on April 1, 2023, life expectancy is now 86.8.

   Another important point is that if you decide to delay your benefits until after age 65, you should still apply for Medicare benefits within three months of your 65th birthday.

   If you wait longer, your Medicare medical insurance (Part B) and prescription drug coverage (Part D) may cost you more money.

3. What about survivor’s benefits?
   The earliest a widow or widower can start collecting Social Security income survivor’s benefits based on age will remain at age 60. 

   Widows or widower’s benefits based on age can start any time between age 60 and full retirement age as a survivor. 

   If a person receives widow’s or widower’s benefits and will qualify for a retirement benefit that’s more than their survivor’s benefit can switch to their own retirement benefit as early as age 62 or as late as age 70.

4. Will other retirement money impact collecting Social Security income benefits?
   The short answer is that they could. If your combined income exceeds a certain amount, then a large portion of your Social Security benefits could be taxable.

5. Will my work history affect collecting Social Security income?
   Yes. Retirement benefits are based on your highest earnings over a 35-year span.

   Also, any income in future years could raise the benefit. That income is checked annually, even if you’ve even started collecting Social Security income.

6. So, I can keep working?
   If you are considering working after your officially retire, know that your benefits can be affected, especially if you haven’t achieved your full retirement age.

   If you earn above a certain threshold, then benefits could be temporarily reduced.

   However, once you reach your full retirement age, there is no limit on how much you can earn without reducing benefits.

7. If married, what is the Social Security income for us both?
   This is where the strategizing comes in. Depending on your lifestyle and financial needs, it could be that one elects to start benefits earlier while the other delays payments.

   Since everyone is different, there is no one right answer and research and planning is key.

8. Have I saved enough to be comfortable with retirement in general?
   Only you can really answer whether to retire today or wait to retire until you are older.

   To reach the right conclusion requires some hard questions, reality checks, and comfort levels as to what the economy may be in 5-10-20 years.