Early Retirement - Financial Freedom (Investing, Tax Planning, Retirement Strategy, Personal Finance)

How To Decide When To Turn On Social Security

• Ari Taublieb, CFP®, MBA • Episode 294

Share episode

Deciding when to claim Social Security is one of the most important retirement choices you’ll make, but most people approach it the wrong way. They pick an age early, cling to it for years, and assume the “best” decision never changes. In reality, the right claiming strategy shifts as your life shifts: your spouse’s benefit, your health, your spending, your tax plan, and even how much joy you’re getting out of retirement all matter far more than a hard rule.

In this episode, Ari explains why Social Security should never be treated as a one-time, set-it-and-forget-it decision. Through real client stories, a behind-the-scenes look at how Roth conversions, RMDs, and retirement income interact, and a simple framework that fits any household, this conversation reframes the entire question. Sometimes delaying boosts long-term security. Sometimes taking it early frees up your cash flow for meaningful years. And in many cases, the “optimal” age changes as your plan changes.

If you’ve been wondering when to claim Social Security, how it fits into Roth IRA conversions, what it means for your surviving spouse, or how to build a flexible retirement income plan, this episode gives you clarity without the jargon and confidence without the fear.

-

Advisory services are offered through Root Financial Partners, LLC, an SEC-registered investment adviser. This content is intended for informational and educational purposes only and should not be considered personalized investment, tax, or legal advice. Viewing this content does not create an advisory relationship. We do not provide tax preparation or legal services. Always consult an investment, tax or legal professional regarding your specific situation.

The strategies, case studies, and examples discussed may not be suitable for everyone. They are hypothetical and for illustrative and educational purposes only. They do not reflect actual client results and are not guarantees of future performance. All investments involve risk, including the potential loss of principal.

Comments reflect the views of individual users and do not necessarily represent the views of Root Financial. They are not verified, may not be accurate, and should not be considered testimonials or endorsements

Participation in the Retirement Planning Academy or Early Retirement Academy does not create an advisory relationship with Root Financial. These programs are educational in nature and are not a substitute for personalized financial advice. Advisory services are offered only under a written agreement with Root Financial.

Create Your Custom Early Retirement Strategy Here

Get access to the same software I use for my clients and join the Early Retirement Academy here

Ari Taublieb, CFP ®, MBA is the Chief Growth Officer of Root Financial Partners and a Fiduciary Financial Planner specializing in helping clients retire early with confidence.


SPEAKER_00:

If you are dead set on collecting Social Security at a certain age, I'm going to beg you to consider looking at it differently. Not because I want to make your life more complicated, more than it needs to be, trust me, I get life is busy enough, but because it could make a gigantic difference. Now let me first start today's episode by saying no one knows exactly when you should collect Social Security. And if someone did tell you exactly when you should collect, I'd be very skeptical of that person. It would be as if someone was guaranteeing that you would have surgery and be okay. There might be a 99.99% chance you'll be okay and recover, but no one can guarantee it. So what I'm gonna go through today is how to actually think about Social Security, and you hopefully in the next 10 minutes will have complete clarity and not worry about it ever again. You will have to do different analyses in the future on it, but you will not have to worry about how do I calculate it. Now for fun, and I don't think any of you guys would do this in your free time, but I looked up what all these big fancy firms say about collecting Social Security. And certain firms say you should collect it at 62, and certain firms say you've got to make sure 70, and others say full retirement age is the sweet spot. Certain people even say, well, it just depends on your health. And the truth is, yes, it does depend. But I am the first person to say, isn't it frustrating when you go to the doctor and they say, hey, what's your problem? And you tell them, and then they go, Yeah, okay, so it depends on these few things. You're like, you know, I know it depends, but I need more than that. Can you please help me with the specific recommendation? So although I don't know any of you all individually in the sense of I'm doing a one-on-one financial plan, I know many of you, because many of you are other clients of our firm here at Root, or you just tune in to the different types of content we do consistently. What I'm trying to say is this Social Security decision is a big one, and I want to make sure you are taking it seriously without over stressing about it. So here's the framework to think about. The way to think about it is very simple. I want you to think of yourself as a boxer, literally a boxer. And I don't want you to get hit in the face, and I'm not gonna make different boxing references other than Creed because Michael Jordan is just so good in that movie. But here I go again on my rants. My point here: Social Security is something that you have to be willing to change your mind on. If you've ever been to a dinner party and someone has an idea, but hey, maybe we should have this for dinner, but you can tell that people are kind of hesitant because, oh, maybe that person recommended a bad one last time. We're not gonna use that head trash is my term. We're gonna go, is this the best idea? If it is, let's consider it, regardless of if it was good or bad. Last time that person recommended that one restaurant. So I know these analogies are a little dopey and silly, but now I'm gonna go away from them and just give you the straight math. Because Social Security, yes, it's a math decision, but it's mainly a life decision. If you knew exactly when you would pass away, this would be extremely easy to calculate, but you don't. And so here's what most of you are thinking. Tell me if I'm wrong here. You can put it in the comments below or send me an email. If you're thinking right now, I don't want to turn on Social Security too early, because if I live a very long time, I want to make sure I'm getting the most of what I paid my, you know, last 30, 40 years of my hard earnings into, then that's very rational. And you're probably also thinking, if I were to pass away, I want my spouse to get their larger amount for the rest of their life. Another rational thought. So I'm with you. But at the same time, a part of you might be thinking, well, I don't know how long Social Security is going to last. I see that it's being depleted. It's not an opinion. Less people are putting in compared to what is being taken out. And I want to make sure that there's less pressure on my portfolio, especially during the years where maybe I'm traveling more or I have healthcare costs. So I don't blame you if you're that person as well. But the way that you're going to have success is one, yes, run an analysis using the tool that I talk about all the time, which you can get in the description of this episode, where you can literally go in and say, what if for your situation, based off of how much money you have, based off how much you want to spend, based on when you want to retire, it will calculate for you. Here's what's optimal. Meaning if you were to pass away at 90, spend X amount during these years, it's telling you the software is calculating this is the estimated amount you'll have at eight X age. So if you were to live until, let's say, age 87, this is how much you'd bring in if you collected at 70 based off of your earnings record. So that's the math conversation. But most people stop there. They go, got it, based off of my health. Let's assume you're in good health. I'm gonna live a very long time, I'm gonna collect at 70, because if I pass away, my spouse didn't work, and they're gonna get that amount for the rest of their life. Too many people are making that mistake. So please don't make that mistake. The way to think about it is every single year, it doesn't take a lot of time, but you do need to ask yourself, okay, what's best for my plan? So for example, I remember there was a client that I was speaking to who was dead set on collecting at 67. They're like my parents collected at that time, it just felt right. So that's what they wanted to do. And they were open to being dynamic. And so for them, they were really adamant on doing Roth conversions. They wanted to move a lot of money from a pre-tax account, a 401k, into a Roth IRA. And if we turn on Social Security early at 62, it would have interrupted the effectiveness of those conversions because more income would be coming in the door, which makes those conversions less effective. I would rather pay taxes at 10% than pay at 22%. So if you turn on Social Security, it can feel nice because more income is coming in, but you're actually doing a very poor tax move. So you can see how Social Security, which in a vacuum, maybe turning it on early sounds great, but if you take it out of the vacuum and you look at it holistically, it might not make any sense at all. In fact, you might lose money. You might be in a better spot if you were to delay and do conversions because that would make you more money. So in this particular case, what happened is they were once again dead set on 67. And by the time 67 came around, we still had not completed the optimal conversions. Why? They spent less than they were expecting in retirement. So they put little numbers into their financial plan. We're gonna spend$8,000 a month and take three trips and this or that. And then health hit them in a bigger way than they expected, and if they know who they are, they might be listening to this. And so they didn't spend as much as they thought. So what happened? Their portfolio grew more than they thought. So then what happened? Their pre-tax balance got even bigger and bigger, which means their RMDs, which start for them at age 75, are gonna be an even bigger problem. So they realized, wow, if we do turn on Social Security at 67, like we initially thought, that's gonna interrupt the Roth conversions, which if we do those well, can make us way more money. So that's one example of why you don't want to just lead with Social Security. Now let's pretend something did not happen where they didn't have a health event and they spent and they loved their retirement and they were thinking of collecting at 67. But pretend we had done optimal Roth conversions. And at 64, we decided that the exact amount that we wanted was in their Roth account compared to their pre-tax account in their brokerage account, which I call a superhero account. Well, in that case, I would say, guys, I know you're waiting till 67, but if you want to turn it on earlier, it's not gonna impact other tax strategy in a significant way. So if you're just waiting till 67 because for some reason you picked that date, that's that's one thing. But if you actually want to be intentional about it, I'd recommend turning it on earlier. Why? I think you're gonna sleep better. And they go, what do you mean? And in this case, I would say if you sleep better in the same way you pay off a mortgage, you're gonna sleep better when you pay off that mortgage. It's one less expense. There's a reason people don't throw a party when their portfolio goes up by$50,000. One, it would be weird to tell all your friends, hey, look, I made more money. But two, you're like, okay, great, that that happened. I didn't really notice it happening, and you're probably not gonna sleep that different because you're thinking markets will go back down, which they will at some point. The difference is with paying off your mortgage, you're like, whoa, I'm done. That feels great, one less expense. Is it the most optimal decision if your mortgage, if your interest rate is 3%, and historically you've gotten 8% rate of return? No. The optimal thing is get 8% every single year and pay down the minimum to the mortgage because you'll make more money. But that's not always the best life decision. So this is why it look needs to be looked at holistically. So if anyone tells you, or if you see an article, you need to collect at 67%, you need to collect at 70 or 62, they're all wrong and it's completely dependent, and you should be willing to switch that based on an idea that you might have that year or a health event that may occur. You might turn out that you want to spend more than you thought. You might turn out that, oh my gosh, I don't even know, you want to buy a second home. All of these little things make a big impact to Social Security. So start with the finances, see what it says when you plug in your numbers. If your life expectancy is 80, well, then age 70 is probably not going to make the most sense for you. But at the same time, maybe you have a huge legacy goal. Okay, well, that's important. Or maybe there's a big age gap between your spouses. So, spouse, you probably don't have multiple spouses there. Okay. So, what I recommend is going and using the software just at a minimum to see where you're at. From there, be willing to speak to your advisor in a very, you know, even if you're your own advisor in a very honest way, and hope you can ask yourself, okay, this year, has anything changed that maybe makes us think we should turn it on? Or has anything changed that's making us think maybe we should delay more? And be willing to shift that. So, yes, is it more work? It is, but it yields the best decision long term for you, which is all we want. I do all of this content so that you can make the best decision to make the most money because you've worked too hard not to. So if you resonate with this style, please, as always, like, comment, um, leave a review if you're listening on the podcast app. I hope all of you guys get tremendous value out of my style. And if you don't resonate with it, I don't blame you. I'm not for everyone. And you can, of course, if you're like, wow, this is awesome. You love this stuff. I don't love this stuff nearly as much as you. You can go to our website, rootfinancial.com, click the little button that says start here, or I think it says see if you're a fit. We just updated it. See if you're a fit in the upper right, then you'll be prompted to answer a few questions, and then we might be talking very soon. Thanks, guys. See you next time. Thank you all, as always, for listening to the early retirement podcast. I love getting to host these shows and make different content for you guys every single week. I've not missed a single week in years, and that is because I love getting to do this. Now, please be smart about this before you actually execute any strategy that you see me talk about or hear me talk about, should I say, please talk to your financial advisor, your tax preparer, your estate attorney. Please be smart about this. None of this should be construed as financial advice. This is for fun, educational, informational purposes only. Once again, just quick disclaimer here, guys. Please be smart about this. Appreciate you listening as always. And you can, of course, submit a question on my website, early retirementpodcast.com. If you, of course, want me to address a specific case study or topic. I will not promise I can get to it, but I respond to every single person. And if I find it will be helpful for a lot of people, I will absolutely make an episode on it. At the very least, give you some insight. That's it. Thanks, guys.