Why should I consider collecting social security benefits early?

[00:00:00] Ralph Estep, Jr.: Have you ever wondered if you should start collecting those social security benefits early? What if I told you that the timing of when you start collecting social security can mean a difference between struggling to make ends meet and living a life of financial abundance and generosity? Today's episode just might be the most important episode you'll hear all year. Today, we're diving into the pros and the cons of claiming at 62 versus waiting till at full retirement age or even wait until age 70. Stick around to hear some eyeopening stories that might just change your perspective on this crucial decision.

[00:00:43] Ralph Estep, Jr.: Before we jump in, if you missed yesterday's episode on whether you're using technology for a connection or escapism, make sure to go back and give it a listen. It's a real eye-opener that could change how you interact with your devices. Just as a reminder, you can find all our episodes at askralph.com. And if you didn't know it, we're approaching over 500 episodes in our archive. So before you make a financial decision, I'm going to encourage you to search our shows and see if I've covered the issue. It might just give you some useful advice.

[00:01:15] Ralph Estep, Jr.: Well now, let's get to today's topic. I received a message from Maribel. She comes to us from South Carolina, and she writes this.

[00:01:22] Ralph Estep, Jr.: "Dear, Ralph. I'm approaching my 62nd birthday and I'm seriously considering taking my social security benefits early. My husband and I have some debt we'd like to pay off and that extra income would really help. But I'm really worried about making the wrong decision. What should I consider when making this choice? Are there any potential pitfalls I should be aware of? We have a few friends that are actually waiting until they turn 70 to take their benefits, but to be honest, my health is not the best and the truth is most people in my family don't make it past 75. I am completely confused as to what to do and scared I'll make a huge mistake. Please help us."

[00:02:03] Ralph Estep, Jr.: Well Maribel, thank you for this excellent question. It's one of the questions that many people wrestle with and the answer isn't always that straightforward, but don't worry. We're going to break it down today and look for some real-life examples that'll help you make a better and more informed decision. Now, before we dive in, I want to remind you that the whole point of the Ask Ralph show is to answer your questions. So keep them coming. Just like you Maribel, you can send your questions to ralph@askralph.com or visit our website. That's at askralph.com and click on the microphone icon at the bottom and you can record your message right there. If you've got a question, I've got an answer or at least I can find you an answer. So reach out right now if you got a situation that I can assist you with and you might very well be on a future show.

[00:02:52] Ralph Estep, Jr.: Welcome to the show, and thank you for tuning in today. I am truly grateful for each and every one of you who takes the time to listen to and engage with this content. Your commitment to improving your financial life while growing in your faith is truly inspiring to me. And it's really the reason I do this show every day. This is my passion. So if you're finding value in the show, I want to encourage you to visit our website. As I mentioned, that's at askralph.com and I want you to join our community and share this episode with others who might benefit from this information. And remember this. When you join our community, you'll get a free copy of my book, Mastering Your Finances. This book normally sells for $10 on Amazon, but at yours absolutely free when you join our email list. So do that today.

[00:03:39] Ralph Estep, Jr.: Before we get into the meat of today's topic, I want to share a Bible verse that I think is particularly relevant to today's discussion. Comes to us from the book of Ecclesiastes 7:12. It says, "Wisdom is a shelter as money is a shelter, but the advantage of knowledge is this: Wisdom preserves those who have it." This verse reminds us that while money is important, wisdom and how we manage, and more importantly, use our resources even more crucial. It's especially pertinent when we're considering major decisions like when should we claim social security benefits?

[00:04:21] Ralph Estep, Jr.: Now let's dive into the heart of today's question. Should you consider collecting social security benefits early? What are the pros and the cons of collecting at age 62 or waiting to your full retirement age or maybe even wait until 70? The truth is this is probably one of the most common questions I get almost daily in my accounting and consulting practice. And it's a discussion that is not always easy to talk about. But the impact will truly last the remainder of your life. So as my grandfather always said, if you listened to me, you've heard him say this more than once. Measure twice, but cut once.

[00:04:58] Ralph Estep, Jr.: I want to start by sharing a few stories that really drives home the potential pitfalls of claiming benefits early without careful and thoughtful consideration. These stories might surprise you and it's certainly changed the way I think about this difficult decision.

[00:05:12] Ralph Estep, Jr.: A few years ago, I had a client named Jim. Jim was 62 and eager to start collecting his social security benefits. He had worked since he was 16 years old, out in the cold is a brick Mason and he was ready to hang up that trowel and start living a full retirement in the comfort of his home. Not out in the elements. Over the years he had accumulated some credit card debt he wanted to pay off and he figured the extra income from his social security would give him more financial breathing room. We met and discussed his options and I laid out plans for his decision about collecting early, waiting till full retirement age, or even wait until he was 70. In the end, the decision was his, but I felt like I had made a compelling argument based on his individual situation that he wait until at least full retirement age to start collecting his benefits. I learned later when I was preparing his annual tax returns, despite my caution about potential drawbacks, Jim decided to go ahead and claim his benefits early. Again, this was his decision. I can make recommendations, but we're all adults and we all have to determine what's best for us.

[00:06:17] Ralph Estep, Jr.: Well, when we met at tax time, Jim shared that at first, things seemed to be going well. Jim was able to pay down his debt and he felt like he had made the right decision. But about a year later, Jim's situation took an unexpected turn. The cost of living had increased more than he anticipated and his reduced social security benefits wasn't quite covering his expenses.

[00:06:38] Ralph Estep, Jr.: Jim realized he needed to return to work to make ends meet. Unfortunately, he had drained his emergency savings and had even taken a couple of distributions from his IRA. Both of these made his tax situation, well let's just say not ideal.

[00:06:53] Ralph Estep, Jr.: Now here's where things got complicated. What Jim didn't realize was that returning to work while collecting social security benefits before that full retirement age can have some serious consequences. If you earn more than a certain amount now in 2024, that limit is $22,320, the social security administration will deduct $1 from every benefit payment for every $2 you earn above that annual limit. Well, Jim found himself in a situation where he was not only paying more in taxes due to his combined income from work and social security, but he was also seeing his benefits reduced. It was a double whammy that left him worse off than if he had simply waited to claim his benefits. Unfortunately, Jim had made a bad decision.

[00:07:38] Ralph Estep, Jr.: Well, let me share another story that shows the flip side of this decision. I had another client, Margaret. She decided to wait until she was 70 to start collecting her social security benefits. This decision wasn't easy for Margaret. She was tempted so many times to start collecting earlier, especially when she saw her friends receiving those monthly checks. She would hear from her friends at church, in her small group about how they were collecting their social security and using that money for some great vacation and one of her friends even used the money to buy a new sports car. But Margaret had done her research and she understood that by waiting, her benefits would increase by 8% per year from her full retirement age until age 70. This meant that by age 70, her monthly benefit was about, and listen to this, 76% higher than it would have been at age 62. As with Jim, Margaret and I sat together and we put together three plans based on the decision to collect early, collect at full retirement or she did, wait until age 70. I'll share that during one of our meetings, Margaret told me about how great her health was and that her Mom and Dad had both lived well into their 90's. She also said that while she was widowed early in life, her husband had really prepared for their retirement and if she continued to live a somewhat frugal life, which she already actually embraced, she knows she'll be able to hold off until getting her benefits until she was 70. She had really thought it out. And as I always say, knowledge is power.

[00:09:07] Ralph Estep, Jr.: Margaret lived to be 98 years old. I can still remember our last phone call when she simply said, Ralph, I want to thank you for helping me live a full and fruitful retirement. Well, I appreciated her comment, but it wasn't about me. It was about all her well thought out decision making. And in my view, her strong faith in the Lord. But the honest truth is because she waited to claim her benefit, she ended up collecting a significantly larger amount over her lifetime than she would have if she had claimed early.

[00:09:36] Ralph Estep, Jr.: But here's the part of Margaret's story that I find truly inspiring. That additional income allowed her to live a more generous life. She was able to support her church in way she never thought possible and even contributed to international missionary work. I was told later that she was one of the most cheerful givers at her church whenever a need arose and that there were so many families who were touched by Margaret's generosity. I even heard that at her funeral, there was not an empty seat in the house. Now, remember she lived to be 98. So it wasn't like all her friends were in attendance. It was simply a Testament to her life and the way she treated others with her gentle spirit and true generosity.

[00:10:17] Ralph Estep, Jr.: Margaret's story is a powerful reminder that our financial decisions can have far reaching impacts not just on our lives but on the lives of others and our ability to live out our faith through generosity. Just think how Margaret's decision while very personal in nature impacted her entire church community and those who she never even met because of her ability to support those missionaries all over the world. It allowed them to spread the message of the gospel. All I can see is wow. What a life!

[00:10:48] Ralph Estep, Jr.: Which leads us back to the topic today. What should you consider when making this decision? Here are a few key points to think about. Number 1. You got to look at your health and family history. If you're in good health like Margaret and have a family history of longevity, waiting to claim benefits could result in more money over your lifetime. The truth is it can be a whole lot more. The second thing you've got to do is assess your current financial situation. If you're struggling financially and have no other options, claiming early might be necessary. But be sure to consider all the alternatives first. You need to sit down with a professional, discuss the options and a plan that will be best for you. I can help you. I'll talk about how to set up a meeting with me later in the show. Number 3. You've got to consider your plans for retirement. If you plan to continue working, you got to be aware of the earnings limit and how it might affect your benefits if you claim before retirement age, like Jim learned. He learned it the hard way. You've got to know the rules and how they're going to impact you. Number 4. You got to factor in your spouse's situation. If you're married, coordinate your claiming strategy with your spouse to maximize your household's total benefits. There are some significant things to consider here, especially if you and your spouse have a large gap in your ages. So completely better reason to talk to somebody. And last but not least, number 5. Think about the impact on your legacy. Consider how your decision might affect your ability to leave a financial legacy or support causes you care about.

[00:12:17] Ralph Estep, Jr.: Think about this, think about all the great work that Margaret was able to do. But also consider the struggles that Jim faced. It's a truly sobering decision point that we all will likely face at some point in our lives. Remember this. This decision is highly personal and depends on your unique circumstances. It's not about maximizing your benefits, but about how those benefits fit into your overall financial plan and your life goals.

[00:12:45] Ralph Estep, Jr.: Well, let's recap for a moment. While claiming social security benefits early can provide immediate financial relief, it comes with potential long-term consequences. On the other hand, waiting to claim can result in significantly higher monthly benefits. Potentially allowing for a more comfortable retirement and increase the ability to be generous. Well, thank you for tuning in today. I hope this message has given you some food for thought as you consider your social security claiming strategy. Remember, if you need personalized advice, I'm here to help you.

[00:13:12] Ralph Estep, Jr.: You can schedule an appointment with me by going to askralphpodcast.com/store. Let me sit down with you today and let's put together some scenarios, just like I've done for others. Why don't you schedule that meeting right now? Don't put it off any longer. And I want you to join us tomorrow for another important topic. Tomorrow, we're going to talk about how do I prepare for an audit of my home office expenses? It's a must listen for anyone who works from home. So as I always say, stay financially savvy and God bless you abundantly.