Social Security And The “Early Out”

Paul Brown |

Throughout the industry, pilots have been offered early retirement packages. Many of you have decided to take these packages and set the parking brake for the last time. Covid-19 may have helped drive your decision, but now, it’s up to you to determine how to plan to have enough income to last your entire retirement. One of your biggest decisions will be when to start Social Security payments. Here are some quick facts and tips to help you work through that decision.

  • Longevity risk, or the risk that you or your spouse lives a long life is the biggest risk to your retirement plans. Social Security pays income for as long as you live; hence, it is an ideal resource to combat longevity risk. Therefore, decisions you make about these benefits are critical.
  • Key Decisions: When should you begin Social Security benefits and when should your spouse begin Social Security benefits.
  • It is quite possible that you and your spouse may choose different times to start benefits.
  • For most people, benefits can be started as early as age 62 and delayed as late as age 70. Each year you delay starting benefits, they increase.
  • With limited exceptions, once you make a decision to begin benefits, the decision is irrevocable.
  • Benefits are based on your lifelong earnings record. A base line payment amount, your “Primary Insurance Amount,” is established based on your “Full Retirement Age” (based on your year of birth).
  • Consider the following criteria when optimizing Social Security benefits:
    • Your age and your spouse’s age
    • The dollar amount of your benefits and the dollar amount of your spouse’s benefits
    • Your health and your spouse’s health
    • The possibility that you or your spouse will work before you reach “Full Retirement Age”
    • Your cash flow needs
    • Other resources that are available to fund retirement: pensions, investments, cash, home equity, income from work during retirement
    • Resources that you or your spouse will have available if one of you predeceases the other. Or, what resources, including Social Security, will the surviving spouse lose?
    • The “Personal Probability” that you or your spouse will live beyond typical life expectancy
    • Be wary of online break-even calculators. In most cases, they are unable to take into account the above factors.
  • Remember taxes. Depending on your “total income,” anywhere from 0% to 85% of your Social Security benefits may be taxed. Navigate to the IRS website to see their definition of “total income.” Don’t forget that states can tax Social Security income differently.
  • There are some special provisions to access spousal benefits for those who were born before January 2, 1954. If this applies to you, spend some time researching on the Social Security website.
  • If you make a decision to delay the start of Social Security benefits to a later age, make sure you re-evaluate that decision every year. Circumstances may warrant a change in your decision.

Information in this material is for general information only and not intended as investment, tax or legal advice.  Please consult the appropriate professionals for specific information regarding your individual situation prior to making any financial decision.