Determining the best age to collect Social Security

Matt: Social Security, right? Something you pay into your entire working life, but when it's time to collect, a lot of people are not sure where to start, and there's ongoing concern about the future of the program with updated projections showing some changes ahead, kind of some concerning changes ahead.

Joining us live for this edition of Matt on the Money is Dan Bennett with Lakewater Advisory. Dan, thanks for being back with us.

Dan: Good to be back.

Matt: I feel like you were excited to talk about this topic because you said we could talk about this at length. Why so?

Dan: Well, Social Security is so exciting to talk about. I know, it's one of those things that could put us to sleep, but it's so important, right?

Matt: It is. It is. And it's going to be different. I mean, the benefits that people claim and then they qualify for are going to be different. And everyone's situation is going to be totally different.

This matters for every working adult. I want to start with the basics here. When can you actually start taking Social Security? What are the key ages people need to know?

Dan: Earliest possible age is 62. Full retirement age for most people, if you're born after the year of 1960, is going to be 67. And you can file and claim all the way up to age 70.

Matt: So, every year from 62 all the way to age 70.

Do you have a read on whether most people are taking it early or late or right there in the middle?

Dan: It really just depends on their situation. There's two really important factors. Number one, what other income sources do you have coming in? Do you have a pension? Do you have rental income? Do you have a spouse that's continuing to work?

Number two, really important, is longevity. Does longevity work in your family? Did Mom and Dad live a long time? And that's really going to determine when you should take the Social Security benefits.

Matt: Yeah, it feels like it could be really hard to kind of game that out and know exactly when you want to claim. How much does that timing decision actually change what you get every month?

Dan: Well, it makes a big difference. If you take it early at 62, which is as early as possible, it is a permanent 30% reduction in the benefits you would have received.

At 67 is going to be the full benefit. Every age after 67, you get an 8% increase or an 8% bump all the way to 70. So, 8% more at 68 than 67, 69, 8% more, and then after 70, it stops. That 8% bump stops, so it doesn't make sense to claim past age 70.

Matt: So, it really pays to maybe delay if you can until that 67, right?

Dan: Again, it just depends if you need it. If you needed it earlier, then it would make sense to take it.

Matt: I want to show we have a graphic that can show our viewers where things kind of stand right now. I had a chart that kind of showed a downward trend of the funds that I was not able to pull, but we're seeing trust funds projected to run low by 2034.

About at that point, you see about 81% of benefits could be paid. That's a huge reduction. The program is now paying out more than it brings in. We know from the Social Security Administration that more than 68 million Americans rely on those benefits.

So, when people hear that 2034 date, and they see that 81% number, what does that actually look like in real life?

Dan: Here's how this works. If you have W-2 wages or if you're self-employed, we're all paying into this system. We're paying FICA taxes, Medicare and Social Security.

The issue was if we look back in 2025, 1.3 trillion dollars came in for Social Security, 1.6 trillion dollars went out in Social Security benefits. A 300 billion-dollar deficit. So, 1.3 coming in, 1.6 going out.

That's where the 300 billion dollars is coming from is this trust fund, and that's what's expected to be depleted by 2034.

Common misconception, people assume it's going to be depleted, there's not going to be any more benefits. That's not the case. Expected to receive 20% less than what they would have received.

Assuming nothing is done between now and then. We know Congress likes to drag their feet. There'll probably be something done, but it will likely be at the 11th hour.

Matt: With just a few seconds left, for somebody who is hearing this, they're kind of trying to game this out, maybe they're getting close to retirement. What's the biggest mistake that somebody might make when deciding when to claim?

Dan: What I've seen when we're working with folks is that they claim too early without having an actual strategy.

So, they continue to work, they don't fully understand how taxes work, which I know we'll get into shortly. But have a plan, stress test that plan. There's a lot of different options, and it can be very, very confusing for a lot of folks.

Work with a professional to help you determine which strategy is best.

Matt: Ask a pro. That helps put this all in perspective, Dan Bennett with Lakewater Advisory. We're going to have Dan back next hour to talk about how Social Security actually works once you start collecting. We'll be right back.