Should I claim Social Security — or wait and live off my 401(k)? How do I make this decision?

See: I want to retire at 55 in a country with free health care. My spouse will draw Social Security, and I have $160,000. Are we crazy?

Dear Reader, 

There are certainly tools that can help you on the Social Security Administration’s website. It has calculators for all sorts of scenarios, including your retirement-benefit estimate, spousal benefits, earning tests and even life expectancy.

Keep in mind, your results will only be as good as your inputs. You should have realistic, reasonable and ideally as-close-to-accurate information as possible. Be sure to have an account on the Social Security Administration to get a detailed estimate of your benefits and verify all of your information is correct. 

You’re right: There are already plenty of articles that discuss the pros and cons — but there’s a reason for that! There is so much that has to go into these calculations. For example, the tax implications of drawing down your 401(k) balance, or the effect on your Social Security benefits, depending on what other income you have. Financial planners can help, especially when they have specific software to run the numbers. There are also people who specialize in Social Security, such as Maximize My Social Security, Social Security Advisors and the network of Registered Social Security Analysts. 

Other suggestions as you run the numbers: First, the financial. Waiting until age 70 to claim Social Security will get you a pretty good rate of return on your benefit. “Where else can we earn 8% fixed by the government, when the 10-year Treasury is under 5%?” said David Demming, a certified financial planner and president of Demming Financial. “It enables us to invest more aggressively with Social Security being a larger surrogate bond component.”

Your investments can also act as your back-up plan, should something expensive happen. “If you don’t have much saved, medical care and emergencies will happen,” said Nicholas Bunio, a certified financial planner at Retirement Wealth Advisors. “Make sure you have these 401(k) assets for the future [rather] than having large Social Security benefits. Again, if you need to spend $100,000 out of $200,000 from the 401(k) just to get three years of higher Social Security, that might actually work against you in an emergency.” 

Whatever you choose, you need a plan that incorporates your cash flow and spending needs, Bunio said. 

Also see: ‘Nobody ever told me’: How do I make sense of Social Security Disability Income & Veteran’s benefits? Please help.

There are, of course, non-financial factors that need to be considered: Women are likely to live longer than men, so they may want to delay Social Security to get a bigger benefit later on.

Married couples also need to take into account the loss of income when one spouse dies, which may place more importance on having investment reserves. Spouses have to do a little more work in their calculations, adding in claiming strategies for spousal benefits. For example, in a couple, the higher-earner may want to wait until 70 to get the highest benefit, which will help the surviving spouse later in life, said Monica Dwyer, a certified financial planner and vice president of Harvest Financial Advisors. “Health and longevity of both spouses should be taken into consideration,” Dwyer said. 

Longevity is a big one, even if it is hard to pinpoint. It is doubly important when married, said Jeremy Finger, a certified financial planner and founder of Riverbend Wealth Management. “You have to take into account either one of the spouses living past 80 or so,” Finger said. “I am a big fan of taking pre-tax income (401(k)) first in retirement. Usually, they are in the lower tax bracket then, and it reduces RMDs later while maximizing Social Security income. Also Social Security acts as longevity insurance.”  

Quality of life matters, too. “Your knees only work for so long,” said Colin Day, a certified financial planner at Correct Capital Wealth Management. “You want to get out and enjoy your retirement, and if you’re worried you’ll spend through your investments too quickly, you might feel like you can’t spend money on the things you want to do, like going on trips.” 

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