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Upgrade: I’m 68 and have $48,000 in debt. Should I take my Social Security now or wait?

Dear Catey,

I am 68, work full-time for the federal government, and plan to retire at age 70. I earn $135,000 a year, but have about 18 months to go to hit my five-year employment anniversary which will get me a $12,000 a year pension and continued health care coverage for life. I also have about $800,000 in an IRA, pay off everything monthly, and my credit score is excellent. The only real debt I have is a $48,000 home equity line, which I have been paying down by $2,000 a month.

Does it make sense to take Social Security now, which would be about $2,800 a month, instead of waiting two years when the payment will be $3,400 — a difference of $600 monthly? I could pay off the HELOC faster but wonder if I’ll regret the loss of $600 monthly?

Thanks,

Anne

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Dear Anne,

While it’s hard to give you an exact answer without knowing a bunch of details about your life (like your life expectancy), when I asked experts to weigh in, they said it seems — assuming you don’t have any major health issues — the answer is this: wait.

One big reason: If you’re going to live well into your 80s, as many of us now do, you’ll likely come out ahead financially by delaying Social Security.

“Assuming she is single and her pension is from a job covered by Social Security taxes, then the decision revolves around her life expectancy. Since her full retirement age [that’s the age you first become entitled to full retirement benefits] is 66, the break-even age [that’s the age when you come out ahead financially by delaying taking Social Security benefits] between starting benefits at 68 or 70 is 84.5,” explains William Meyer, CEO of Social Security Solutions, which provides advice and guidance for Social Security for impending retirees.

(Readers, it’s important to note that you can start receiving Social Security benefits at age 62 but they will be reduced benefits — and waiting will garner you a larger paycheck. Fidelity explains how it works: “If you claim Social Security at age 62, rather than waiting until your full retirement age (FRA), you can expect up to a 30% reduction in monthly benefits. For every year you delay past your FRA up to age 70, you get an 8% increase in your benefit. So, if you can afford it, waiting could be the better option.)

In other words, when we just look at the Social Security part of the equation, at age 84.5, you will come out financially ahead by delaying taking your Social Security. (Readers, this resource will help you calculate your own break-even age and this calculator will help you determine how much more you might get a month by delaying benefits.)

Of course, you also have HELOC debt, so that’s a factor here, too. But as Mitchell C. Hockenbury, a certified financial planner at 1440 Financial Partners in Kansas City points out, it’s not likely that paying it off by taking early benefits is worth it to you.

Indeed, you say that the difference in delaying your Social Security payments is $600 a month. “That is 21% more. Guaranteed in two years! If I could guarantee clients a 21% return over the next two years I’d have a line around the block waiting to take me up on the offer,” Hockenbury jokes.

And Meyers adds that while you will need to calculate your interest payments on the HELOC for the next two years, it’s unlikely it will be more than the added benefit you’ll get by delaying Social Security. Assuming you are correct on how much your benefits will be, he notes that at 70 you’ll get $40,800 a year and at 68 $33,600, which is a difference of $7,200 a year. If you live to, say, 95, you will have gotten nearly $80,000 in additional benefits by delaying Social Security, which is likely to be significantly more than the amount you pay in HELOC interest.

There are two other things that should encourage you to delay taking benefits, Meyers points out: “First, suppose her life expectancy is about 84.5. The risk of running out of money in her lifetime is highest if she lives longer than expected. This would encourage delaying her benefits until 70,” he explains.

The other thing is tax considerations. “Based on the size of her IRA and her projected pension, her income in retirement will likely be low enough that she will have less than 85% of her Social Security benefits taxable, especially if she waits until 70. If she begins her Social Security benefits now, then she may have to pay taxes on 85% of her Social Security benefits until she retires.”

Readers, these kinds of calculations are important for all of us to do, because as you can see, delaying Social Security could mean you rake in tens of thousands of dollars more than you would if you took it earlier. So if you’re healthy, among other factors, consider a delay. “Most folks in hindsight wish they delayed. When people retire, they have a tendency to be shortsighted in how many years they will live in retirement,” says Hockenbury.