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How Age Impacts "Optimizing" Your Social Security Benefits

It may seem obvious, but there is more to optimizing social security benefits than many retirees might think.  Most conversations on when to start Social Security benefits focus on "maximizing" social security benefits.  However, it is more important to determine how to "optimize" your social security benefits.  This is a much more individualized conversation.  Optimizing social security benefits also takes into consideration tax implications, other sources of income (pension, continued employment, sources of investment income, etc.) and any other factors specific to you.  Maximizing benefits is primarily, if not fully, based on the unknown.. life expectancy.

There has been a general understanding among most people that the longer one waits to take their Social Security benefits, the more he or she is going to have as a recipient. However, there is also the fact that the longer one takes to withdraw, the shorter a time period one might have (depending on which the age you die) to actually collect at all. So there is a bit of a tradeoff everyone should calculate for their personal situation and what they think might be the best play for retirement.

Some argue a retiree should take his or her benefits as early as possible. Cash in hand is always better than a promise. This of course means that while Social Security benefits can begin being withdrawn at age 62, the figure paid is much lower at this age than withdrawing it later on. However, the same recipient can also then use the funds, reinvestment and make them grow elsewhere.

On the other hand, if a person waits, the maximization of benefits waiting until age 70 or so can be a big difference in the actual monthly payment received by thousands of dollars. For example, for those born after 1960, the difference between taking benefits at age 62 versus 67 is about 30 percent, or $300 out of every $1,000 possible. ¹

For those who want to retire earlier, it means both waiting for eligibility to withdraw as well as making sure one has a plan of support until that age is reached. That means having enough savings to cover the gap, and that cost can be substantial as well (See Related Articles: How To Invest After You Retire and Revisiting the 4% Rule).  However, be aware that if you have not accrued 35 years of work per Social Security, a person won’t realize a full benefit payment schedule.² The figure may actually be even lower if any of the years were not full-time employment. 

There's also the caveat of earning money in later years. The traditional thinking has been that a person who worked for about 30 years and then retired, by the time he or she took their government benefits, the earnings would no longer be coming in and the person would receive benefits in a lower tax bracket. However, these days, continued employment, even if only part-time, during retirement is becoming far more common. And that means the income plus benefits plus any retirement account withdrawals starts to bump people up into a higher tax bracket than expected. So in some cases, it starts to make sense to rely on earnings or savings first and hold of on withdrawing benefits to avoid unnecessary tax hits. On the other hand, others argue it's better to tax the government benefits early and then rely on personal savings later. 

Lastly, be aware that the your choice of when to tap certain sources of income may also impact your ability to utilize certain tax strategies such as Roth conversions or Qualified Charitable Distributions (QCD).

As you're going through the retirement planning process what you will find is that there is no clear default path to rely on. Each retiree has to map out his or her personal situation and make the best choice that applies at the time. However, those who research, educate themselves, and time their decisions right can often gain more than their peers who otherwise are the same in income, timing and age.


  1. https://www.ssa.gov/planners/retire/agereduction.html
  2. https://www.ssa.gov/planners/retire/1943.html