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

February 8, 2013

Advisor answers

Ira Fateman

Ira Fateman

Certified Financial Planner
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 f...

Michelle Brownstein

Michelle Brownstein

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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Jeff Vistica

Jeff Vistica

Certified Financial Planner, Accredited Investment Fiduciary
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 you...

Lisa Hay

Lisa Hay

Certified Public Accountant, Certified Financial Planner
Uniontown, 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 f...

Guy Baker

Guy Baker

Certified Financial Planner, Chartered Life Underwriter, Chartered Financial Consultant, Accredited Estate Planner
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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Jon Warner

Jon Warner

, Enrolled Agent
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 ...

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