Transcription
Most financial adviserss will tell you to wait until 70 to file for social security. And honestly, I usually agree with them, but there are specific situations, five of them, where filing at 62 is not just okay, it's the smart move. And I'm not talking about being desperate for cash. I'm talking about strategic reasons. reasons that involve real math, real tax planning, and a cleareyed look at what actually maximizes your lifetime wealth, not just your monthly paycheck. So, after working with hundreds of affluent retirees here in Virginia and across the United States, I've seen firsthand that the always wait advice doesn't always hold up. And the reason it doesn't, well, it has everything to do with how social security interacts with the rest of your financial plan, your taxes, your portfolio, your spouse's benefit, and yes, even your health. Today, I'm walking you through five legitimate strategic reasons to file for Social Security at 62. I'll show you the actual math of one of the most powerful strategies for married couples and I'll explain why thousands of high earners are suddenly filing early right now. So stay through to the end because the fifth reason connects a tax strategy many people completely overlook.
Here's the thing many people get wrong about social security timing. They treat it like a standalone decision. Should I take less money now or more money later? And when you look at it that way, waiting almost always wins. The break even age between filing at 62 versus 70 can be between 79 to 81 years old. Live past that, you come out ahead by waiting. But that calculation ignores everything else. Your tax bracket, your portfolio withdrawals, your spouse's benefit, your Medicare premiums. Social Security doesn't exist in a vacuum. And when you factor in how it interacts with the rest of your retirement plan, the answer for some people flips entirely. That's what I want to show you today. Not the generic break even math, the real math, the math that includes your whole picture.
So reason number one, your health or family history suggest a shorter timeline. I'll be direct about this one. If you have a chronic condition or if longevity doesn't run in your family, the break even math changes dramatically. Filing at 62 versus waiting until 70 doesn't pay off until somewhere around age 78 to 81, as I'd mentioned, that's a long time to wait. Michael Kitsy's published the piece last year, making a point I think more advisers should acknowledge and that is treating a dollar at age 95 the same as a dollar at age 62 can push people toward underspending during the years they're healthiest and most active. There's a real cost to delaying, not just financially, but in terms of what you can actually do with the money. Nobody likes talking about this, but if you're 62 and your father passed at 71 and your mother at 74, the math isn't ambiguous. Take the money, use it while you can.
Reason number two is you've retired into a volatile or declining market and your portfolio needs breathing room. And this is one of the most underappreciated reasons to file early. If you retire at 62 and the market drops 25% in your first year, every dollar you pull from your portfolio during that decline can significantly reduce its ability to recover. That's sequence of returns risk, and it's one of the biggest threats to a portfolio in early retirement. So much so that we even recorded a video on it, so be sure to watch that if you have the time. Now, filing for Social Security at 62 can bring in up to $2,969 per month if you earn the taxable maximum in each year, beginning at age 22 and start receiving benefits in 2026. And every dollar of that is a dollar you don't have to pull from a depressed portfolio. You're giving your investments time to recover instead of selling into a decline. Now, this isn't a blanket recommendation. If markets are strong and your portfolio is solid, the math may favor waiting. But if you're watching your accounts drop and you're pulling $8,000 or $10,000 a month from your IRA to cover expenses, filing at 62 becomes a pressure release valve that can save your retirement. So, I'm curious, where are you in this decision? Have you already thought about when you'll file or is it something you'll still be working through? Drop your age and your current thinking in the comments below. I read every single one.
Reason number three, and this is the one I want to spend a little bit extra time on because for married couples, it might be the most powerful strategy on the list in this video, the spousal coordination strategy. And here's how it works. If you're married and one spouse earned significantly more than the other, the lower earning spouse files at 62 while the higher earning spouse delays all the way to 70. And I'll be honest, early in my career, I defaulted to telling every client to delay as long as possible. Both spouses, maximum benefit for everyone. But when I started running through the numbers through our tax planning software for real households time and time again, not just the averages, but actual couples with a million dollars, $2 million, $3 million portfolios, the answer surprised me. And let me show you why. Picture Tom and Linda. Tom's 62, a recently retired engineer. Linda's 60, working part-time as a consultant. They've got about $2.5 million saved, most of it in IRA. Tom's estimated social security benefit at 67 is about $3,000 a month. At 62, that drops to $2,100. At 70, it grows to $3,720. They spend about $12,000 a month. Without Social Security, all of that comes from their portfolio. $144,000 a year in IRA withdrawals, fully taxable as ordinary income, pushing them into the 22% bracket. Now, what if Linda, the lower earnner, files at 62? Her benefit would be roughly $1,190 a month. That's about $14,280 a year coming into the household. And here's what that does. their IRA withdrawals drop from $144,000 to about $129,000. That drops their taxes a little bit because 85% of the social security is taxed versus 100% of IRA withdrawals being taxed. It basically buys Tom time to delay his benefit to 70 where it grows by 5% per year from 62 to 64, 6.67%. 67% from age 64 to 67 and then an additional 8% per year from age 67 to 70. And here's the part a lot of folks miss. Tom's larger delayed benefit also becomes Linda's survivor benefit if he passes. This is a decision you'll want to think through together because the spouse who delays isn't just growing their own check. They're building a safety net for the surviving spouse. Now contrast that with what happens if both Tom and Linda delay to 70 for 8 years. Every dollar comes from their portfolio. In a flat market, that's manageable. In a down market, they're liquidating $144,000 a year from declining accounts. And Linda's survivor benefit, while still based on Tom's record, doesn't increase any faster. The coordinated approach brings money in the door, protects the portfolio, and still maximizes the larger benefit. For many married couples in this income range, it's the best of both worlds. And keep in mind, this is a hypothetical scenario for illustrative purposes and does not represent actual client results. So, if you're finding this helpful, just do me a favor and hit subscribe. I've got a video coming up on the potential for social security permanently reducing benefits for everyone and for couples like Tom and Linda. The planning around social security matters a lot. So, subscribe and don't miss it. And if you want to see how these numbers look for your specific situation, there's a link in the description for a free strategy session.
Now, reason number four, the trust fund reality. I want to be careful here because I've seen too many YouTube videos use this to scare people into bad decisions. But the numbers are the numbers, right? So the 2025 social security trustees report projects that the old age trust fund will be depleted by 2033. Not eliminated, depleted. After that, Social Security can still pay about 77% of scheduled benefits from ongoing payroll taxes. Now, think about what that means for someone who's 62 today. If you delay to 70, you'd reach age 69 before the trust fund is projected to run out. You get one year of your maximum benefit and then potentially face a 23% cut. Filing at 62 means you collect 100% of a reduced benefit starting now. Now, they've never once allowed benefits to actually be cut, so the odds are in your favor. But if you're someone who plans around certainty rather than probability, there's a logic to collecting sooner rather than just hoping for a legislative fix later. Especially for high earners where means tested reductions have been floated in multiple proposals. Now, between January and May of 2025, Social Security claims actually uh surged 18% compared to the prior year. And the biggest increase, well, it was among high earning 62 year olds. These aren't people who need the money. They're people running the same calculus I just walked you through, presumably. Now, I'd love to hear from you. What's your biggest concern about Social Security? Is it the trust fund? The tax impact? Figuring out the right age? Let me know in the comments and your questions would certainly help me decide what to cover next.
Now, reason number five, you've stopped working and every dollar from your IRA is costing you more than you realize. Here's something people overlook. If you retired at 62 and you're funding your entire lifestyle from IRA withdrawals, every single dollar is taxed as ordinary income. On $144,000 in IRA withdrawals for a married couple in 2026, you're paying upwards of 22% just on federal taxes. Social Security replaces some of that IRA income. But here's the key difference. At most only 85% of your social security benefit is taxable. For many people, especially in the early years, it's much less. So, going back to Tom and Linda, by having Linda file at 62 and replacing $14,280 of IRA withdrawals from Social Security income, they're swapping fully taxable dollars for partially taxable dollars. That's a slightly lower effective tax rate and it may open room for Roth conversions in those gap years before RMDs actually kick in, which compounds the tax savings for decades potentially. Now, the gap years between 62 and 73 before required minimum distributions force money out of your IRA. That's the golden window for tax planning. And in some cases, filing early for social security is the move that makes the rest of the strategy work.
So, let me bring this together. Five strategic reasons, not desperate reasons, to consider filing at 62. Health and timeline, portfolio protection in volatile markets, spousal coordination to maximize household income and survivor benefits, the trust fund math of social security potentially being reduced for everyone, and finally, the hidden tax cost of IRA only withdrawals. Now, I want to be clear about something. For many people, delaying Social Security is still the right call. Research from the NBER suggests that the vast majority of Americans would benefit from waiting. We see this all the time when helping clients with Social Security timing strategies. These five reasons are exceptions, not the rule. They apply to specific situations. And if you're not sure whether one of them fits you, that's certainly worth getting professional guidance on. Now, one more thing. If you're still working at 62 and earning more than $24,480 a year, there's an earnings test that can temporarily reduce your benefits. That changes the math on early filing significantly. So, make sure you factor that in.
So, what's the common thread? Social Security isn't a standalone decision. It's just one piece of a plan that includes your taxes, your portfolio, your Medicare premiums, and your spouse. If you're married and approaching this decision, send this video to your spouse. This is one you should really just watch together. And if you would like to see how these five scenarios apply to your specific numbers, we offer a complimentary retirement strategy session. No obligation, just a clear conversation about your options. So, visit covenantwealthadvisors.com or use the link in the description down below.
Now, everything I just showed you changes completely if you're also planning Roth conversions. And if you're sitting on a large IRA with $1 million or more, you probably should be. So, I break down the exact math on how we often recommend paying taxes on Roth conversions from your IRA. And very little is published about it online. That's the video to watch next. I'll see you on the next video. Take care.