, Newburyport, MA


January 15, 2013

Why it's bad to take Social Security at age 62


According to a research paper published by Prudential at the end of last year, it makes sense to consider tapping your IRA to fund early years in retirement and delaying your Social Security claim. The tax savings doesn’t occur during this transition period. The tax savings are realized at age 70 or later when your enlarged Social Security benefits are taxed at their more favorable rate.

The provisional income formula, a confusing feature of the tax code little-known to the average retiree and confusing to everybody, is used to determine the amount of Social Security that is subject to taxation and your ultimate taxable income.

Many retirees, who seek a constant amount of retirement income, will find that the combination of larger delayed Social Security benefits with smaller IRA withdrawals will reduce their taxes from age 70 on.

Because the formula for calculating provisional income includes only half of any Social Security income, the greater the amount of total retirement income derived from Social Security, the greater the benefit derived from the provisional income calculation. By boosting Social Security income by delaying your claim for it, you not only have a greater Social Security benefit but you may also have reduced your overall tax exposure.

Everybody’s case is different. In the example cited in the Prudential research paper a couple seeks $90,000 in gross income in retirement. If they take Social Security early for a $45,000 payout and draw the other $45,000 from their IRAs, their taxable income is $71,000. If Social Security is delayed until they can take $70,000 in benefits and need only $20,000 from their IRAs, then their taxable income is half of the $71,000.

Before you are tempted to take the [Social Security] money and run, have a professional help you figure out the possible long-term tax advantages to delaying your claim.


Donald E. Askey, a fee-only financial adviser and planner with offices in Newburyport and Boston, can be reached at

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