I'm 62 with $1 million: Can I Retire Early and Withdraw Social Security Now or Wait Until 67?

Casey Weade: You're 62 years of age, you've saved a million dollars for retirement, and you want to know, should I file for Social Security early or should you wait until later? Today we're going to walk you through the basics of understanding how Social Security functions and how that decision might be unique to you given you've done such a good job saving for retirement. Hey there, I'm Casey Weade, CEO and founder here at Howard Bailey Financial, Certified Financial Planner Practitioner, and I'm going to walk you through a situation today for a couple that are 62, 63 years old that did a good job saving for retirement, about $1 million saved for retirement.

We're going to better understand how Social Security functions and apply these scenarios to their given situation as we not only look at a Social Security analysis in a vacuum but then carry that over to their actual planning scenarios and see the differences. You may have already heard that your Social Security breakeven's around 75, 80 years old. I'm going to show you how it might be a little further out than that, which might give you a better reason to actually file today rather than taking the general advice that you've seen out there in the world. Let's take a look at how we can better understand how Social Security functions.

When we're running this analysis for you, we can run this analysis for free, and we only need a few pieces of information. We need your date of birth so we can determine what your full retirement age is, and then we need your PIA, that's your Primary Insurance Amount. That's the benefit you would actually receive if you waited to file until your full retirement age. If we look at what is that full retirement age, we go over to ssa.gov and the Social Security Administration gives us those dates. Depending on the date of your birth, that will determine your normal retirement age, your full retirement age.

A lot of times, this is where I see folks get this wrong. They say, "My full retirement age is 67. That's when I get my full Social Security benefit." That's not exactly true. I think it's a bit of a misnomer because it's not when you get your maximum amount. It's when you get your full amount, but not your maximum amount. That maximum amount, as you know, that comes at age 70. The early amount is 62. If you're born between '43 and '54, sure, your full retirement age is 66. Every year you go beyond that, it gets a little bit later, at 1960 and later.

If you were born 1960 or later, your full retirement age is actually 67. What reduction would you get? There's some simple math that we're able to apply to understanding what your benefits would be reduced at when you file for Social Security early, at say 62. That reduction used to be a 25% reduction. That's changed. No longer is it a 25% reduction for everybody because now we have individuals that were born 1960 and later that are going to be filing for Social Security. That reduction from that full retirement age amount, that primary insurance amount at full retirement age, is actually a 30% reduction.

If you file at 62 instead of 67, you'll see a 30% reduction in your benefits. If you were to delay those benefits to age 70, you're going to find across the board it's about a 25% increase over that primary insurance amount at your full retirement age. Now let's take this information and apply it to your scenario. We're applying it to a scenario here for a couple that are 62, 63-ish. They're stepping into retirement right away and they really wanted to file for Social Security early. Those early retirement benefits, if they file for Social Security early, it's going to be about $1,440 a month if they file for what we're calling small here.

We've got big benefit, small benefit, $1,440 a month, $1,164 a month. You'll see we included that projected cost of living adjustment. What's that? You have inflation-adjusted Social Security benefits. In order to determine an appropriate amount, we look back at the history of Social Security inflation adjustments that started back in '75. The 50-year average is about 3.7%. We always want to be very conservative when we're building retirement plans to make sure that all of these things we're implementing come to fruition and give you even more confidence that you're going to be able to retire and never run out of money.

What's it been over the last 10 years? A bit lower. We lived in a very low inflationary environment for a long time from 2008 roughly to about 2021. We had a pretty low cost of living adjustment with Social Security, but then we saw it tick up at about 6% in '22, almost 9% in '23, 3.2 in '24. These are very important numbers for us to remember as we're going to be plugging these in to do the analysis and build them into your retirement plan as well. Let's say that we assume this. Now we want to first go to our Social Security tool. We're going to take a look at the Social Security tool and we're going to look at Social Security in a vacuum.

If we look at Social Security in a vacuum, this tool is going to tell us when the best time is for you to file for Social Security in order to maximize your benefits. Now for this couple, as you know, it's very important to know what your life expectancy is. If you can tell me how long you're going to live, I can pretty much tell you exactly what your Social Security benefit strategy should be, but we don't know exactly what that is. For this couple, they wanted to use age 85 for him, age 90 for her. We're using age 85 and age 90 for this couple. That's where you can see big bucket stops at 85, small bucket stops all the way out to age 90.

What is the optimal strategy? The software is going to point us to the optimal strategy being what you often read in the newspapers and other major media publications. That is, wait until age 70, max out your benefit. The software is telling us to wait until age 70. If they wait all the way until age 70, those benefits are going to be about $2,400 a month for that small bucket, $3,150 a month for that big bucket, the bigger benefit. This is an important nuance. I want to take you back to our retirement planning software real quick and show you the Social Security calculator that would be illustrated in here.

Still the same numbers, about $1,400 a month at 62, $1,100 a month at 62. When we go all the way out to age 70, it's showing us $2,500 a month, $2,000 a month. What did we see in the analysis we just ran? We didn't see $2,500 and $2,000. We saw $3,000 and $2,400. Why are the numbers so much bigger in the projection when we use the Social Security calculator?

That's actually because it's incorporating that cost of living adjustment because you get that cost of living adjustment every year whether you filed for Social Security or not. That benefit continues to increase. We need to take that into consideration in order to run a proper analysis. If we ran it this way, we want to look at that break-even. This is what I talked about in the open of that video. That crossover, because our green line here is delaying until age 70, our blue line here is filing for Social Security as early as possible for both of these individuals.

That crossover is often what we would expect it to be at 77 and 78. At 77 and 78, that's their break-even. Now I think what's interesting and important to take into consideration is going to age 70. If we go out here to age 70, now they're both on Social Security, they are now looking at cumulative benefit increases of about $225,000. Now if we go all the way out here, they're going to see cumulative benefit increase is about $350,000. Why is it $225,000, $235,000 here at age 70 is the difference between these two? Because essentially they've had to spend about $250,000 of their hard-earned money that they've worked hard to save.

They've had to spend about $250,000 of that in order to delay those benefits to age 70. They had to spend down their own money because they weren't receiving Social Security. They had to supplement it somehow in order to meet their spending goals. Over their lifetime, they're going to end up with about $350,000 extra. Yes, if they didn't have anything saved for retirement, they should delay as long as possible. The equation changes a little bit for someone like yourself that's done a good job-saving. The more money you have, the more likely it really is that it might be better for you to file for those Social Security benefits early.

Let me show you why that is. Now we go back to our scenario. Take a look at their assets. This couple, they have about $1 million in their employer's 401k. There's about $100,000 sitting aside in the bank. Their spending is about $5,000 a month after tax. We imply a historical inflation rate of that at 3%. What does that look like? Over their retirement, they're fine. They could file for Social Security early. Even when they're out here, they're 100 years old there's still about $1.5 million that they have set aside in these accounts. Now what if we actually take that Social Security, delay it out to age 70?

If we delay those benefits to age 70, we carry over those numbers from our Social Security analysis at $2,354, $3,150 a month, same inflation rate, same assets. We have expenses that are the same. What happens in this scenario? Now when they're 100 years old, they have $2 million in their retirement accounts versus $1.5 million in their retirement accounts. There's a difference of about $500,000 if they live. all the way to age 100.

Again, the longer you live, the better it's going to be for you to delay those benefits as long as possible. Now if we go out here to our age 78-79. If we look at age 78-79, 77-78, this is about where we saw the break even in our social security analysis. We can see in this scenario there's about $1.6 million left in their retirement accounts at 77-78 years old. Alternatively, if we look at that scenario that we delay benefits all the way until age 70 and file at that point, now there's about $1.4, $1.5 million in these accounts versus having roughly $1.6 million.

We have a lot more money in our retirement accounts if we file early rather than filing late. If we go out to age 85, we have about $1.8, $1.9 million in our file early scenario. If we go all the way out to age 85 to our delaying late, we have 1.8, 1.85. We're actually seeing a break even when it comes to the cumulative assets that you're able to have in your retirement accounts. It's not 77-78. It's more 85-86. I think that's important for you to consider as you're determining what your social security filing strategy is. I just see far too many people that will go straight to that social security analysis and say, "I'll get $ $250,000 and more benefits if I delay as long as possible.

If you actually take those numbers and compare them as it should be incorporated in your financial plan, you'll quite often find that the break-even isn't as early as you thought it was. It's much later than you thought it was. For this couple, they decided that they want to file early because they said, "We don't know that we're going to live 85-90 and we would rather spend the dollars that we know the government doesn't have and save the dollars that we know that we already have in our pocket. These are all very important considerations for you to be making as you're approaching retirement.

This is just one piece of the pie. If you want a free social security analysis run for you, we can do that here in our office and it's super easy. All you have to do is call the number on your screen, ask for a personal financial review and a free social security analysis. That number is 866-968-3658 or just check out a link in the description.