Help Me Retire: I’m 63, unemployed since March, and have $220,000 in retirement savings — should I claim Social Security early?

Here is my question: Is this a good time to take Social Security to help subsidize my gig work or should I wait until my Full Retirement Age?

M.S. 

See: Confused about Social Security — including spousal benefits, claiming strategies and how death and divorce affect your monthly income?

Dear M.S., 

When to claim Social Security is the age-old question. There are so many variables to weigh when making this decision, and yet, perhaps the most important is whether you need that money as soon as possible or can afford to hold out.

And as often is the case, the answer to your question about when to start receiving Social Security is: “It depends.” 

Financial advisers typically recommend delaying Social Security until at least your Full Retirement Age because then you get the full benefits you’re owed. When you claim benefits before your FRA, those benefits are reduced. Of course, not everyone can wait until their full retirement age — in your case, about three years from now — to get Social Security, as they need to supplement their income in retirement at the moment. 

Not everyone may want to wait to claim their benefits either, especially if they expect a short life expectancy. “For this situation, one of the primary considerations is her health,” said Amy Shepard, a financial planner with Sensible Money. “If she is healthy and expects to live a long time, waiting to take Social Security likely makes the most sense. If she is not in great health or has other reasons, such as family history, to think that she may not live long then taking Social Security early may make sense.” 

Assuming you’re healthy and anticipate living into at least your 80s, there are other considerations to make. First calculate a few figures, including what you expect to earn in freelance or consulting work, said Justin Rucci, a wealth adviser at Warren Street Wealth Advisors. Social Security withholds $1 in benefits for every $2 above earnings of $18,960 in 2021. “Deciding when to take your benefits is subject to many factors, one of the most important being your health and overall life expectancy, but she should also consider her expected earnings in her decision should she decide to collect prior to full retirement age while earning wages,” Rucci said. Here is more information from the Social Security Administration on the earnings thresholds. 

As I said before, claiming early will also reduce your benefit 5/9 of 1% for every month from the time you file until your Full Retirement Age, said Michael Peterson, founder and wealth adviser at Faithful Steward Wealth Advisors. 

So what can you do? One option — begin distributing from your retirement accounts to supplement your gig work, Peterson said. “That way she does not permanently reduce her Social Security benefit by filing early,” he said. “Nor will she risk having her benefit reduced in the event she earns more than $18,960 from her gig work.” Once your portfolio is gone, or near gone, you’ll have a larger Social Security check waiting for you, Shepard said. 

Also see: I’m a 57-year-old nurse with no retirement savings and I want to retire within seven years. What can I do?

Ideally, you’ll be making enough money from gig work or another job to offset your financial needs, so you’re not rapidly drawing down your retirement assets or tapping into your Social Security. To get a good picture of how that would work, determine what your cash flow is, with and without unemployment benefits. What will your shortfall be every month if unemployment runs dry, or you don’t earn as much in freelancing as you expected one month? How much do you really need to take from your retirement accounts? “I would encourage her to do anything she can to cut expenses or find income from other sources,” said Andy Baxley, a financial planner at The Planning Center.  

There are so many other components to ensuring you live comfortably in retirement, so you may want to consider working with a financial planner for your retirement savings needs. A professional will assess your investment portfolios, as well as help you strategize how to draw down these assets so that they stretch your lifespan, and they’ll do so within the context of a financial plan. The greatest fear for many older Americans is running out of money in retirement, and working with a financial adviser could help you avoid that nightmare situation. 

There’s good news in all of this, and you touched on it in your letter — freelancing. “Gig work is much more prevalent now than ever before,” Baxley said. “Depending on her skill set, there are likely to be some great options out there if she knows where to look.” 

Have a question about your own retirement savings? Email us at [email protected]