I’m 62 with $1 Million Saved. Should I Take Social Security?

The decision about when to take social security is a confusing one for many people. Let’s say you are nearing the finish line of your working career and wondering if you should take social security now or wait until a later date if you are age 62. Here’s an example of a way to approach this decision.

I’m 62 with $1 million saved. Do I take social security?

Let’s take the case of our client Jane (not her real name), a 62 year old woman with $1 million saved as her retirement nest egg and a home that is paid for.  Jane has a pretty straightforward situation and is seriously considering retirement. Should she begin drawing social security now? What types of income can she expect? What are the risks for doing so?

Step one: Know the Numbers

First, it’s important to understand what your monthly expenses are or at least have a reasonable handle on the subject. Shockingly, many don’t have a clear gasp on their monthly outflow. If you’re reading this and have built a comfortable nest egg, we’ll assume you are pretty good here.

Second, we recommend you get a good sense of all the options of drawing social security at different ages. There are many free software tools available to help you with this, or you could ask a financial advisor.

Step two: Evaluate Options

Let’s assume the following options Jane is considering:

  • Take social security early
  • Wait until full retirement age
  • Wait until age 70

Jane had a very good handle on her expenses, which were consistently between $4,000 and $5,000 a month. We reviewed some retirement planning software together and she decided that a reasonable withdrawal amount from her retirement savings would be $3,000 per month. She believes this will enable her to draw some funds today and hopefully grow her savings over time so that her income can keep up with the cost of living.

So, based on this Jane has a shortfall of $1,000 to $2,000 per month. Can/should Jane start drawing social security now in order to make up the difference? If not, what are the alternatives?

Regarding her social security:

If Jane were to start today at age 62, she would draw $1,400 per month in social security. Fantastic! This gets her to about where she needs to be.

But wait! Should Jane simply start social security today and ride off into the retirement sunset?  Actually, she may be better off waiting! If Jane can wait and take social security later, at full retirement age, her monthly benefit would be $1,800.  At age 70, her benefit would be $2,400 per month, substantially higher than $1,400!

The fact is that Jane’s benefit increases by almost 70% if she can wait until age 70. This is a “real” increase, meaning it will rise that much after accounting for inflation.

Most likely, for Jane, waiting makes sense. Why?  Financially speaking, a 70% real return is pretty darn good over 8 years.

But more importantly, by waiting Jane will dramatically reduce the risk of bad things happening when she is older! A million dollars is a lot of money but it’s not as though Jane will be living on easy street. She’ll likely see many bear markets and recessions during the course of her retirement.

What if there is a market crash? Or what if she lives to 100? Either or both happening would potentially create a serious risk to Jane’s quality of life.

Step three: Consider Alternative Scenarios

As we discussed, Jane would have a much more “robust” retirement plan if she waited longer to start drawing social security.

But for Jane, she was tired of “the grind” and wanted to travel and spend more time with her grandchildren.  Completely reasonable and quite understandable. She’d like to do more of those things now, and who could blame her.

But before committing to starting social security right away, we suggested Jane may want to consider a couple of “creative” alternative scenarios.

First, we discussed with Jane the possibility of working in some slimmed down capacity with her current employer or perhaps doing something altogether different that is part time/seasonal in order to generate some income.

Second, we “ran the numbers” for her to determine if it makes sense for her to increase her withdrawals for the next 8 years by $1,500 per month or so to bridge the shortfall until social security kicked in (after which she would reduce her draws). In her case, it most likely will.

Either of these alternatives would likely be a better choice for Jane than to start social security now.

Ultimately, for Jane, she was able to establish a half time working situation, giving her the flexibility to travel and spend time with her grandchildren while still earning $30,000 per year. Coupled with the draws from her portfolio, she can easily meet her cash flow needs.  If she is able to delay social security until age 70 by operating this way, the benefits are huge! She would have an extra $1,000 per month coming in for the rest of her life.

Conclusion on whether or not to take social security if you are 62 with $1 million saved

The main point is that when you retire, you have more options than you think. If you have certain skills and a lifetime of work experience, perhaps you should consider downsizing your career while still earning some income. This, or drawing a larger (but sustainable) amount from your nest egg in the earlier years, can give you the option to delay starting social security and create a more robust retirement plan.

Whatever your situation, always look at the numbers before deciding to take social security. If you have question on how to do this or would like to discuss this with our team, please email michael@providusadvisors.com.

About James Dwyer, CFP®, AIF®

James Dwyer has worked in the financial services industry for over 15 years. He is currently a partner at Providus Advisors, an investment advisory firm located in Chandler, AZ.

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