The Real Question Behind When to Start Social Security (It’s Not 62 vs. 67 vs. 70)

Most people think deciding when to take Social Security is a math problem. Run the numbers. Find the breakeven age. Pick 62, 67, or 70. Done.

But that approach misses the point. This is not a math decision. It is a risk decision.

In this episode, James reframes how to think about Social Security timing by focusing on what each choice actually protects you from. Claim early and you protect against the risk of a shorter life. Delay and you protect against the risk of living longer than expected. Choose the middle and you split the difference, but still carry exposure on both sides.

The complication is that this decision never exists in isolation. Delaying benefits might increase lifetime income, but it can also put pressure on your portfolio in the early years of retirement. A market downturn during that window can change the outcome far more than a simple breakeven analysis ever shows.

There are also second order effects that rarely get discussed. How the decision impacts a surviving spouse. How taxes evolve depending on where income is coming from. How the combination of Social Security and portfolio withdrawals ultimately shapes your long term plan.

The takeaway is simple. Social Security is not about picking the perfect age. It is about understanding which risks matter most to you and building a plan that accounts for them.

Because in the end, Social Security is just a tool. The goal is not maximizing a benefit. The goal is creating a retirement that works no matter what happens next.

Learn the tips & strategies to get the most out of life with your money.

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Transcript

When Should You Take Social Security?

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When should you take Social Security? Most people think this is a math problem. They look at 62 and 67 and 70, they run the number, see the break-even point, and then choose based upon that analysis. But as a certified financial planner who's worked with hundreds of actual retirees, I'm here to tell you it is not a math problem. It's a risk decision. Because every single decision you make is protecting you from one type of a risk while potentially introducing another. And if you understand that, and I mean really understand that, you're in a far better decision to make the decision that works for you, as opposed to simply going with a break-even analysis. So in today's video, I'm going to walk you through number one, how social security is calculated, because it's important to understand this, to understand the impact the different decisions have, what happens at age 62, 67, and 70. And then most importantly, what risk are you protecting against based upon what age you collect at and what risk are you now exposing yourself to if you collect at that time? So to understand the risks, we need to first understand the foundation of how is Social Security actually calculated. Well, Social Security takes a look at your 35 highest years of inflation adjusted earnings. So every year that you paid into Social Security, Social Security is going to take a look at those earnings, adjust them for inflation, and use them to say, here are your 35 highest years of earnings. And we're going to use this to calculate what's called your primary insurance amount or the amount that you are eligible for at your primary insurance age, which for most of you watching, if you're not already collecting, is age 67. So if you worked for 35 years and you had strong earnings, great. If you didn't work for 35 years, then any year that you did not work, Social Security is simply going to include zero as the number for that year, and that gets used as part of the calculation. Now here's where it gets interesting. All that calculation is done to calculate your benefit at age 67, which is your primary insurance amount. If you collect as early as 62, which is the earliest you can collect, you will receive 70% of what you would have received at age 67. Now, on the flip side, if you delay collecting your benefit after the age of 67 and you wait all the way until age 70, your benefit is 124% of what it would have been at 67. You're taking advantage of what are called delayed retirement credits. Your delayed retirement credit gives you a simple 8% adjustment to your benefit for every year that you delay collecting after your full retirement age. Now, just to be clear, this isn't a simple collect at 62 or 67 or 70. You can collect at any month along the way, and these changes are prorated. So for example, if you don't collect at age 67, but you collect at age 67 and a half, you don't get a full 8% adjustment to your benefit, but you do get a 4% adjustment to your benefit. But keep those numbers in mind. And just a quick recap at age 62, you're getting 70% of what you would have received at age 67. And at age 70, you're getting 124% of what you would have received at age 67. So what's the right thing to do? Some people tell you collect it early while you can. Other people will tell you to delay as long as you can because you're locking in that benefit for life. Let's actually explore that. You claim it's 62. What risk are you actually minimizing? Well, the first risk that you're minimizing is short life expectancy. If you wait to collect and you pass away at age 68 and you haven't collected yet, you don't get anything from Social Security. You've paid into the system your whole life, you pass away. Think of Social Security more like insurance, which it is, than like a brokerage account or portfolio that you can pass on to your spouse or your children. So if you don't have a long life expectancy, the earlier you collect, the more likely you are to maximize your benefit. Keep this in mind though, if you collect early, consider that a permanent decision. Yes, there are ways to stop collecting and have your benefit continue growing, but for all intents and purposes, if you collect, that's going to be a permanent reduction of your benefit over the course of your lifetime. Now, one interesting thing to note here is I mentioned it's a 30% total reduction between age 67 and 62, but it's not proportionate all of those years. The three years leading up to age 67, so from 64 to 65 to 66, every year you collect early there, you're taking a 6.67% reduction per year early that you collect. You go beyond those 36 months or those three years to years four and five, so all the way from 67 to 62, those last two years, you're taking a 5% reduction for every year that you collect early, and that's prorated across the month evenly. So that's important to understand because there's some years where it actually costs you more to collect early than it would in other cases. Now here's another important overlooked factor. There's something called the earnings limit. Or maybe you're saying, you know what, James, I don't have a long life expectancy. I'm still working, but I don't think I'm gonna live very long. So I'm gonna collect Social Security while I can. You have to be mindful of something called the earnings limit. With the earnings limit, you can only earn a certain amount before Social Security starts to withhold part of your benefit. For 2026, that number is$24,480. So if you're earning more than called a couple thousand dollars per month, Social Security will start to withhold one dollar of benefits for every two dollars of earnings you have above that threshold. So just because you are age 62 does not necessarily mean that you will keep all of your benefit, even if you collect. By the way, if you haven't already done so, make sure you click the subscribe button below. Every single week I'm gonna put out a video that gives you tips and information you need to retire with confidence. Now, one other important thing to realize is this earnings limit only applies to earned income. So if you have a pension coming in, if you have portfolio withdrawals coming in, if you have dividends and interest, that does not impact how much you are eligible to collect in Social Security. It's only your earned income that does. Now, another detail with that is maybe you're retired and you want to collect early, but your spouse is still working. Well, they could earn whatever amount they want. It doesn't impact your social security benefit. So even if they're above that$24,480 earnings limit, if you're collecting Social Security, you're in the clear. It's only your income that impacts your social security benefit when it comes to this earnings limit. So we just talked about the risk that collecting at 62 protects you against. Let's now show you the risk that this exposes you to. The biggest risk is, of course, longevity risk. If collecting early helps to protect you against a not long life expectancy, what it opens you up to is what if you do continue living for much longer time? Well, you've locked in a lower benefit, and that benefit might not be enough to get you all the way throughout retirement. The other risk is if you're married. If you're married, social security should absolutely be a two-person decision. Heck, even if you're married and if you look at the both of your incomes, both of you collect social security, and maybe the combined amount gives you everything the two of you need when you're both living. But what happens when one of you dies? When one of you dies, your benefit's gonna get cut in half. But your expenses, they're not gonna get cut in half. They might drop by 10%, 15% or so, but if you're not factoring in what's gonna happen to your surviving spouse, you're probably gonna make a bad decision with this. Understand that when you pass away or your spouse passes away, the surviving spouse has the ability to collect a survivor's benefit. The survivor's benefit would be the full amount that you are collecting. So if you pass away, your spouse could either continue collecting what they're getting based upon their own earnings record, or they could get 100% of what you were collecting. What they're gonna do is look at which one's higher, and whichever one is higher they're going to collect. So if you've locked in a low benefit and maybe they don't have a strong earnings record, not only have you fully locked in a lower income amount for the two of you when you're both living, but you're leaving your spouse with a much lower benefit because one benefit is going to go away when one of you passes. So claiming early protects against the financial risk of dying young, but it very much exposes you to the financial risk of having a long life expectancy either for yourself, your spouse, or the both of you. Let's now look at age 67. 67 can be thought of as the neutral option. It's not perfectly in between age 62 and 70, but at age 67, you have what's called your primary insurance amount, your full benefit at your full retirement age. So at 67, I wouldn't say there's extreme risks on either side. You're kind of playing it in the middle. But here is something to keep in mind. Your social security benefit is taxed more favorably than other types of income. Meaning your social security benefit, a maximum of 85% of it, will be included in the amount that you pay federal taxes on, and potentially none of it will be included in your state income tax, depending on what state you live in. But for example, I live in the highest income tax state of California. California taxes income at very high rates, up to about 13%. With Social Security, though, none of it is taxed. So depending on your state, it's not am I a low income tax state or a high income tax state? It's are you in a state that taxes Social Security? So keep that in mind because even if you're taking this neutral option, sometimes the risk is understanding when you do retire. Do you pull money from Social Security? Do you pull it from your IRA? Do you pull it from somewhere else? And that should very much be embedded in your overall tax strategy so that the combination of where you're pulling money from is as low as it can possibly be. But in general, age 67 doesn't fully protect against longevity risk, nor does it fully protect against a short life expectancy. It doesn't fully protect your surviving spouse, but it gives you a lot better of a chance of them being okay than collecting at 62 does. So it's that middle ground. Let's now move on to age 70, because this is the one that surprises most people. The first risk that you're reducing here is longevity risk. If you live until 125 years old, by collecting at 70, you've maximized your benefit and that benefit will be with you for the rest of your life. That is something that you cannot overstate how important that is to a financial plan. Just to give you some context of what that might look like, if your benefit at age 67 is$3,000 per month, well then your benefit at 70 would be$3,720 per month. That's a 24% increase that's with you for life. Think about how much less stress there might be if you knew that was the income floor you were going to receive and you didn't have to worry about what markets were doing, you didn't have to worry about your portfolio. That was gonna be with you forever. The other risk that this protects against is your surviving spouse not having enough money to meet their needs once you pass. Once again, the survivor benefit says not only are you locked in that benefit for you for the rest of your life, but your spouse is eligible for that if you pre-decease them, and vice versa. So by waiting until 70, it very much protects against that. Now, here's a single biggest risk I see far too many people make. Most people, they look at this, they do the break-even analysis, and they say, well, if I'm gonna live past the age of 81 or 82, somewhere in that neighborhood, it makes most sense to wait until age 70 to collect social security. Because the numbers, the calculations on the breakeven analysis say once you've lived past that age, your cumulative benefit is going to be higher than if you had started at 62. So at 62, you have a lower income amount, but for more years, versus 70, higher income amount, but for fewer years. There is a break even, and that tends to be in your early 80s. Here's what people do not take into account and can absolutely be devastating to your financial plan if you're not thinking through this. Let's assume that you retire at 62 and you run that breakeven analysis and you say, well, I plan to live till 90. Who cares how long it was planned? Maybe you think you're gonna live until 90 because you're healthy, you have longevity in your family, and that's what you think is a realistic assumption. Well, you run the calculator, you run the breakeven age, and you see that you'd be better off collecting at 70 because of that. Well, what happens there? You push off your income for eight years, which means from 62 to 70, all that money needs to come from your portfolio. Well, as you're pulling money out of your portfolio, what happens if there's a severe market downturn during those eight years? Sure, you're delaying your social security and maximizing your benefit, but at what cost to the rest of your portfolio? At what cost to the rest of your plan? When you're thinking about your income in retirement, don't think about social security and portfolio and pension and broke, don't think about those in a vacuum. The real question is how do these combine in such a way to maximize my total income? And if you're so myopically focused on maximizing social security at all costs, you might unintentionally be destroying your overall income because you're draining your portfolio too quickly. This is very prevalent because for most people, their portfolio is not designed to meet all of their income needs. Their portfolio is designed to say, yes, with Social Security, between that and the portfolio, we can meet all our income needs. But if you're pushing Social Security out until 70, what you're doing is you're putting a lot of pressure on your portfolio in those in-between years. And if the market's doing great in those in-between years, maybe you don't have anything to worry about. But what happens when the market drops? 30%, 40%. What happens when you're taking not 4% from your portfolio, but you're taking 6, 7, 8% per year from your portfolio because you need to bridge the gap between 62 and 70? It's a really bad combination of things that happen to the point that you might draw down your portfolio. So age 70 comes and you're happy about your social security benefit, but now the rest of your plan is nowhere close to being able to give you what you actually need to spend. So that's one of the biggest risks I see with people collecting until age 70 is it's being unaware of the opportunity cost in the meantime and what a potential downturn would mean for your overall income when your portfolio might be decimated based upon the withdrawals combined with a market downturn in the meantime. So not a reason not to collect until 70, but a good reason to say have a contingency plan in place. Do you maybe plan on collecting at 70? But understand that's a decision that could be accelerated if needed to potentially protect against sequence of return risk. Now, with this, I'd be remiss not to say that waiting until 70 also opens up tremendous tax planning opportunities. Sometimes that same individual, assuming they have the right financial strategy in place from 62 to 70, that's what's called your tax planning window. If you've got the right portfolio to be able to withstand a downturn in the market, that could be an incredible window to implement Roth conversions, to implement tax gain harvesting, to implement some of these tax strategies that says in those early years when your income tax bracket's at its lowest, pull money from brokerage accounts, pull money from cash accounts so that you can start to shift money from pre-tax accounts to Roth accounts and start building this tax-free account for future years. As you start to wrap this up and think about what benefit is best for you, no decision should be made in a vacuum. Do not make your decision because you went to a social security seminar and someone printed out a breakeven analysis for you. That math is correct, but it misses the bigger picture. Understand the variety of factors that actually go in this decision. Your life expectancy, your spouse's life expectancy, your other portfolio assets, what the market's going to do, your spending patterns, and how that's going to change over the course of your retirement and so much more. When you have all that information, you can start to view social security not just as a math problem, but as a thing that can protect against whatever the greatest risk to your financial strategy is, while also understanding that the risk it now presents can be offset in other ways. So Social Security, just like every other income source or investment you have, is just a tool. Freedom is the ultimate goal. Are you using the tools in such a way that's gonna get you in a position to maximize your potential freedom?