Turning 62 might not feel like a milestone birthday… until you realize the Social Security clock just started ticking. Filing now could put money in your pocket sooner or cost you tens of thousands over a lifetime. How do you pick the right strategy? Let’s break down how to think through one of the biggest retirement decisions you’ll ever make.

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Transcript: 

Speaker 1:

Turning 62 might not feel like a milestone birthday until you realize the social security clock just started ticking. Filing now could put money in your pocket sooner or cost you tens of thousands over your lifetime. So which is the right strategy? Let's break it down.

Hey everybody, welcome to the podcast. This is Plan with the Tax Man, with Tony Mauro and myself to talk, "Hey, I'm 62. Should I file or wait?" That's the big conversation, Tony, that happens all the time. I imagine you probably have this chat with new prospects virtually every single time you meet with somebody.

Speaker 2:

Every time. Yes. And I picked this topic this week because I've been getting a lot of questions on it. There's been a lot of chatter on social media about it. So I wanted to address it again because it is important.

Speaker 1:

And it's complicated for people, but you could talk big money here. So I mean, why do it? Why file at 62? There's a plethora of reasons. If you take out the just actual need it, okay, it's like I ran the numbers and we actually do need to turn it on. Oftentimes it's things like, "Well, it's mine. I want it back." Or whatever. Understandable, but what's some other things you've heard?

Speaker 2:

Well, I hear things such as, "My parents didn't live very long, so therefore I want to collect it while I still got some time." Okay. And by the way, as we talk about this, we could sit, if I had 10 listeners on the podcast as a call in, we would all have different opinions. And you could get into some serious arguments about this. So a lot of this depends upon each individual situation, like most things financial planning do. But that being said, besides worried about longevity, they want to basically take the money and invest it in themselves. Some want to give it to their heirs a little earlier.

Some are, of course, like you said, they're just ready to get out. They've worked for somebody else forever. They want to retire now and they need the income now is always the biggest one, but there are some drawbacks to that, which we'll get to. But those are the things I find most people want to take it early. And most people, when they want to take it early, they've given it no though other than those things. They haven't run any projections. They haven't done any type of planning for this, which we'll talk about here in a second.

Speaker 1:

Okay. Well, why wait until FRA, full retirement age? So there's some compelling reasons to do so. First, it's what, about 6% annually. If you were to do the numbers from 62 every year you're waiting, it's about 6% up to full retirement age. Yeah?

Speaker 2:

It is. So when you take it early, of course, you have to take a reduction in benefits.

Speaker 1:

Yeah, like 30%.

Speaker 2:

Yeah. And there's a cap on how much you can earn if you're still wanting to go out and do some work. Now, if you wait till full retirement age, not only is your benefit higher, but you can go out and earn as much as you want and they won't reduce your social security benefit. Yeah, you're still taxed on it and all of that. But that's one of the reasons why people might want to wait. They want the higher benefit. They might want to use some sophisticated planning and coordinate with spouse benefits and maybe have the lower amount or the lower earning person take theirs earlier and the higher earning take theirs later. And then of course, like I said, maybe-

Speaker 1:

You should definitely think about doing that, right?

Speaker 2:

Absolutely.

Speaker 1:

Yeah.

Speaker 2:

I mean, that's one of the biggest ones. And a lot of times you get this full retirement age statistically showing both men and women, if your health is fairly decent, you plan on living quite a bit longer up to at least the averages. At least that's, again, that's an assumption. But those are some reasons why. And if you start running some numbers and you take a look at, I ran my own before we got on the podcast. And if I took mine at 62 versus 67 is my full retirement age, by the time that I, if I lived, I used both scenarios. This is just for example, and this is what the planning software can do for you. If I lived until 83, if I waited until 67 versus 62, I would've collected $72,700 more if I waited. And so you have to decide and you should run some of these numbers.

And I also would say to all the listeners, you at very least should be out and have yourself a login and username to the social security website so you can see your reports and look at some of this stuff. It's free. They've actually done a nice job with it. So the question becomes like, in my case, is it important enough for me to delay? Because I could die between 62 and 67. Who knows?

Speaker 1:

Sure, yeah.

Speaker 2:

But do I want to take that chance and maybe get 72, $73,000 more I live in the same amount of time? And I think that is what the real planning stage is. And there's really no right or wrong answer because for some people, yes, maybe they do need it at 62, but for a lot of us, if you don't need the income, it generally is better to wait.

Speaker 1:

Yeah. I mean, think about it. 6% from 62 to 67 is... And it's a safer investment because somebody would say, to one of the arguments, "Well, I want to just take it now and I'll reinvest that money." Especially if the argument is that, "I'm doing it, I'm turning it on, but I don't actually need the income." So let's just take, I need the income off the table because if you need it, you need it. But if you're turning it on because you just want to turn it on for whatever other reason, and you're saying, "Well, I can invest in myself." Okay, maybe you're going to get a guaranteed 6% year over year with very little risk. That's one piece. Now you might look at the market right now year to date, the S&P, Tony, while we're talking is like up 16%. Somebody said, "Well, yeah, I could get 16%." Well, fine, but that's 100% at risk.

Speaker 2:

That's 100% at risk. I just saw not too long ago, which led me to even pick this topic this week is somebody on Facebook sent me a clip of what appeared to be a financial advisor or some annuity person talking about it's never better to wait. Always take it at 62. And I listened to it and I would love to debate that with a gentleman, at least for every case. I mean, he does make some compelling arguments as to why some people should take it at 62, but most of what he was talking about was, "Well, they need the income now and they can reinvest it." Well, okay, yes, that is right, but you can't just sit there and tell everybody never to wait because there are some compelling arguments in some cases to wait.

Speaker 1:

Yeah, yeah. And to your point. So you ran those numbers at $70,000 or whatever. Did you think about the spousal piece? Sometimes people, they don't necessarily do that. It's like, okay, don't forget, the higher of the two is what the person that's left behind is going to get. So you mentioned earlier doing that option. So if you're in a situation where one member of the family, one of the couple there is making more and you want to turn the lower one on at 62, that's a fine strategy for many people still run the numbers first to see. But again, you got to kind of factor all that stuff in there. You can't just claim it without some intentionality in there.

Speaker 2:

No, you do need to be intentional with it. You do need to talk to your advisor about it because that's one thing that we use a lot is we have the lower earning spouse, if they do want some money now, okay, let's claim that now, but let's let the higher earning spouses ride a little bit and then that way you've got kind of a little bit of best of both worlds. You're getting some money now because that's what you said you wanted, but you want to get some higher benefits and generally the women live longer and if the man dies, then she can reclaim and get his higher benefit, which will benefit her later by him waiting. And so I think that's one thing that we generally try to do as far as that goes. But we use some good software just like most advisors have to be able to at least show people and run a lot of different scenarios very quickly so they can at least have all of the facts to make the best decision for them.

Speaker 1:

And you know, Tony, it can go the other way too. I was just talking with another advisor earlier and he was sharing an interesting story that he had some new clients that were in prior, right before Thanksgiving, saying that they were in, they were starting to do the preliminaries and everything and they were like, "No, no, we've already identified a lot of stuff and we're going to both wait until we're 70." They wanted to do the total maximization. And he said, "Cool, but let's go through the exercise of running stuff and just see what those," Like you kind of did, "What some of those projections lay out." And he was able to show them for a myriad of reasons why, and again, he's like, "It's not my job. If you want to go 70, we'll go 70. But if we turn it on, in your case, specifically both of you at 67, you're actually going to fare better." So there is times when it can go one way or the other, but you don't know that until you get into the math of it.

Speaker 2:

You don't. And that advisor probably showed them something they probably never had dreamed of and probably going to-

Speaker 1:

They were shocked, yeah.

Speaker 2:

Get more money over their lifetimes.

Speaker 1:

They were, actually. And then you started thinking about IRMAA and you start thinking about the taxational. That's the other piece, how much of your social security is going to get taxed? In this situation where we were talking about today or our topic point, if you're turning it on at 62, but you don't need the income, you are probably going to wind up paying the max tax on this too. So not only are you taking a 30% haircut, but you're probably paying up to the 85% as taxable.

Speaker 2:

It's going to be taxable. And depending on your tax bracket, it could increase that haircut by quite a bit, which is why you need to think about some of this stuff before you do it.

Speaker 1:

Now you got a buzz cut.

Speaker 2:

Yeah. The other thing too is I always ask people, well, if you take it 62, especially the single people, what are you going to do for health insurance until you're 65? Because Medicare doesn't kick in. And so there's some things to think about there. And if you just blindly go into this and quit your job or whatever, you probably aren't going to be able to go back and now you could be stuck with some real unfavorable circumstances.

Speaker 1:

Yeah, yeah. We all know that age discrimination is not supposed to be a thing, but we also know it's a thing. So it's like trying to be 70 and find a job or the job you had before, the odds aren't great.

Speaker 2:

Not great.

Speaker 1:

No. So at the end of the day, look, it's a huge, huge decision, Tony. I mean, you can truly be talking tens of thousands of bucks here.

Speaker 2:

You can. I mean, at the end of the day, as I say, and on most of them, and of course, we're tooting our own horn here with, you need your advisors and help to make sure that your decisions work with your plan, your health, your long-term goals. And once you do that, then at least you could feel good about what you chose. But like I say, I would caution you to just blindly do it without running the numbers because they are big. And in fact, back to my case as we close is, my plan personally is we're probably going to wait at least until we are full retirement age, if not 70, because I'm going to want that extra 70,000. I mean, that's just my psyche. But I have run the numbers and we might do a spouse claiming early, but it probably won't be 62. It might be 64 or 65.

Speaker 1:

And that's true. That's true. The reason we hear things like, "Oh, there's 6,000 claiming options." Or whatever they claim there is that's because every day after 62 that you delay and turn it on, could change something, whether it's 63-

Speaker 2:

Two pennies.

Speaker 1:

Yeah. 63 in two weeks or 64 in three months or whatever it might be. So it all changes that number a little bit. Again, about 6% roughly from 62 to 67 is the growth. And then from 67 to 70, it's what about 8%.

Speaker 2:

It's about 8%, yeah. It really goes up during those last couple, two or three years.

Speaker 1:

So something to think about. So the right social security decision depends on your income needs, work plans, health and long-term goals, but before you file, make sure you're choosing that path that supports your retirement, not necessarily just some other reason that you've got in your head. And if you need some help with that, to Tony's point, tooting the own horn, yes, but the social security office folks, they do a fine job, but they're not allowed to help you go through the... They're going to tell you your options and then you pick. They're not going to ask you about your tax implifications. They're not going to ask you about your IRAs and how much you have in your income so that you're making the right decision based on all that.

So get with a financial professional before you take this action and have those chats. And if you need Tony's help, yourplanningpros.com is where you find them online, yourplanningpros.com. Don't forget to subscribe to the podcast on Apple or Spotify and also share with others that might benefit from the message as well and maybe enjoy the content. Maybe they'll need some information that might help them along their path. Again, yourplanningpros.com. Tony, thanks for hanging out, my friend. It's the end of the year, so have yourself a great holiday season, my friend.

Speaker 2:

You do the same, and I wish everybody out there a great and safe holiday season as well.

Speaker 1:

Yeah. And we'll see you in 2026. Ugh, sounds weird already, but we'll see on the other side here with Tony Mauro from Tax Doctor, Inc. on Plan with the Tax Man.

Securities offered through Avantax Investment Services SM, member FINRA, SIPC. Investment advisory services offered through Avantax Advisory Services. Insurance services offered through an Avantax affiliated insurance agency. Investment strategies discussed in this episode may not be suitable for all investors. Please consult with a financial professional.