When is social security "free money", and when/in what circumstances is there a downside to taking social security?

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  • 1 out of 1 person found this answer helpful

    CFP® San Francisco, CA

    Social security money is not free because anyone receiving benefits has to have paid into the social security system for a proscribed period of time.

    There are many rules and strategies in claiming social security.  A plurality of Americans start collecting Social Security when they turn 62 which is the first year SS can be claimed.  Generally this is not a good idea but there are definitely circumstances where this is the best choice.  An important variable is whether you are married.  But that is just one of the first issues.

    The downside to collecting your benefits from Social Security is that you do not optimized your benefits based on your own financial circumstances and you cannot undo receiving benefits after receiving them for 1 year.  

    I recommend reading about social security on the sea.gov website or talking to an advisor before making any decisions about receiving benefits.

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  • 1 out of 2 person found this answer helpful

    San Francisco, CA

    First I think it’s important to keep in mind that Social Security is generally not “free money”. Remember – if you’re eligible to collect benefits, it means either you or your spouse paid into the system. If you are eligible to take benefits, there is no reason not to collect. However, there is often a reason to delay taking benefits until age 66 or 70, such as collecting a bigger check every month. If you are working, and have earned income, it is usually better to defer payments.

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  • 1 out of 2 person found this answer helpful

    AIF®, CFP® Carlsbad, CA

    If you're eligible to receive Social Security benefits, you've been paying into the system through reductions of your pay over a number of years.  So there really isn't "free money" when it comes to Social Security.  There are ways, however, to maximize your Social Security benefits and smart strategies to help claim your benefits.


    Taking Social Security early can be a costly mistake.  Many factors such as the amount of money you've saved, tax treatment of your investment accounts, other retirement income sources and your health should all be considered in determining when to take Social Security. When you take Social Security too early you will see a reduction in the amount paid to you had you otherwise waited until your full retirement age, or longer.  If you have no other sources of income or limited savings, it still may make sense to take benefits as soon as able.  It is best to run the numbers and consider all factors that would impact your overall financial planning.   To help you run some numbers, a helpful calculator is available at whentofiless.com.  The system will email you a report with a suggested claiming strategy for just you and/or you and your spouse.


    In an article I wrote for the San Diego Union Tribune last year, I highlighted 2 ways to maximize Social Security benefits.  

    Link to the San Diego Union Tribune article. 


    Hope that helps.


    Jeff

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  • 0 out of 0 people found this answer helpful

    CPA Stow, OH

    The current "effective rate" of deferring taking social security from initial to age 70 is 8% per year.

    It is difficult to find a "guaranteed" investment that has those returns.  There are many "gotcha's" and spousal provisions in the social security code, which add to the impact of making a wrong choice.  As an advisor who specializes in this area (few do, since there is no commission or residual income involved in SS planning) I have written an ebook which is available on Amazon

    When To Apply for Social Security-Strategies for Maximizing the Guaranteed Income You Can't Outlive

    Also,  the social security election decision should be made in a vacuum, as there are many other considerations- availability of other assets, tax planning, etc.  I recommend that you seek the advice of a CPA or independent CFP who will work with you on an hourly fee basis and guide your through your options from a tax and lifestyle perspective.

    Feel free to contact me for additional information.

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  • 0 out of 0 people found this answer helpful

    CFP®, MBA, MSFS Irvine, CA

    If you earn more than $3x,xxx - not sure of the amount, you actually lose some of your benefit until you reach at 66. So it is in your best interest, you are working and earning enough money to pus it off until you reach your normal ss retirement age.

    I don't know what you mean by free money, unless you are referring to this cutoff. You will always pay tax on your ss. The question is how much tax.

    Hope this helps!!

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  • 0 out of 0 people found this answer helpful

    EA, MBA San Francisco, CA

    I do not know what "free money" means from your prospective. Social Security is based on your 35 best earning years so if you have worked for more then 35 years but are making less money now in any of those years previously, then your contributions could be considered "free" to the government as they will not contribute any more to your benefit payout. 

    You can go to the Social Security Website to calculate multiple scenarios as to what your benefit will be at any age. http://www.ssa.gov

    If you take your benefit at 62 it will be 25% less then at your Full Retirement Benefit Age. Either way, you will still get a COLA with is about 3% a year.



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