During a recent family gathering, some of the pre-retired folk began sharing their wisdom about social security – a timely topic for them. They were sitting among a circle of chairs in the living room, while sipping their black coffee. I was on the sidelines of this conversation tending to my sugar-crazed kids, but did my best to tune an ear to the conversation. Those engaged in the discussion were commenting on the social security benefit calculations they’ve ran and collectively decided it didn’t make sense for anyone to delay this benefit. Their rationale being “you have to live to 85 years of age before you break even”. I found humor in the conversation because their conclusion was predictable.

My family’s approach at comparing cumulative lifetime benefits is classic, and the same as the vast majority of people. When calculating cumulative benefits, most people are using pen and paper and ignore the impact of cost of living adjustments (COLA). Let’s explore the lifetime impact of this for someone with a $1,500 benefit at full retirement age. The numbers below were calculated using a social security planning tool. Technology is our friend.

Claiming Age	Age of Death	0% COLA	1.5% COLA	2% COLA
62	85	$292,581	$396,260	$438,928
70	85	$338,520	$484,944	$546,537
	Difference	$45,939	$88,684	$107,609

When accounting for COLA, the cumulative benefit from delaying social security becomes much more substantial. Even so, the truth of the matter is gross cumulative social security benefits often aren’t the most important metric to base this decision. The timing of social security is important but of greater importance is how this annual income fits into your overall plan.

It makes sense to want the most money possible from social security, but people allow emotion to influence this decision. The fear of losing out on income in the event of a premature death becomes more influential than the potential benefit of delaying social security. My encouragement is to remove emotion from this decision and instead, direct your attention to your long-term plans. The most important consideration when deciding what age to elect social security is how complementary this income is to your current and future income expectations. To determine the best timing for social security requires knowing your future plans.

The importance of social security varies greatly. For some it’s the backbone of retirement income and essential to make ends meet. For others, social security income is pure gravy being spent on non-essential extras. The more depended you are on social security, the more critical this irrevocable decision. If you’re dependent on social security to make ends meet and are unable to continue working you should claim benefits, assuming the inability to work isn’t temporary. There’s no sense delaying benefits if it means defaulting on your mortgage. If this is your situation, you really don’t have a choice.

Those who have a choice in the matter need to weight their options. To do this you first need to understand that social security is taxable income. The amount of benefit that’s taxable depends on your overall income, known as combined income. To determine combined income, add half of your social security income to all other income, including tax-exempt interest. The amount of social security benefits that’s taxable depends on combined income and filing status, as follows:

Taxable Benefit	Single Combined Income	Married Filing Joint Combined Income
Up to 50% of SS benefits	Between $25K – $34K	Between $32K – $44K
Up to 75% of SS benefits	More than $34K	More than $44K

You can elect social security between age 62 and 70. When weighing your options, consider your overall income during this time. One of my relatives involved in the social security discussion at the family gathering is in the process of selling a business and transferring ownership of another business to his children. I haven’t a clue how this will contribute to his taxable income but imagine these will trigger capital gains. This is an extreme example of why it could make sense to delay social security but my point is to consider what your income will look like during this window of time. There may be reasons for not wanting additional taxable income. When considering the impact of social security income, keep in mind federal and state income tax brackets, capital gains tax rates, and income limits on subsidized health insurance.

Those considering social security benefits are likely retired from their careers, and most won’t have a business to sell. More commonly, other income during retirement is coming from investments. If you were to delay social security and instead withdraw from investments, what would this look like? Would these accounts be depleted?  How would withdrawals from these accounts be taxed? How would this affect future income sources in terms of taxation, reliability, and continuation to your spouse after death?

Retirement planning consists of mapping out current and future finances and attempting to minimize taxes, reduce unnecessary expenses, and control risks. When planned properly, the likelihood of a successful retirement is enhanced. Many decisions can be mathematically solved for on an individual basis, but the equation is never the same for everyone, and never as simple as comparing gross lifetime social security benefits.