Social Security – Take it Early or Not?
Much has been written recently about the pros and cons of taking Social Security early at age 62 vs. waiting till full retirement age (which gradually increases till it reaches age 67 for those born in 1959 and later). One article I read recently explains why it could be a huge mistake to take Social Security early. What I didn’t see in the discussion turns out to be a big blind spot. There is no mention of how long term care costs might impact the decision.
Advocates of waiting till full retirement age point out that the payment, after adjusting for inflation, can be as much as 75% more than the payout at age 62. In the case of a married couple, if the spouse with the higher earnings waits till full retirement age to collect and dies first, the surviving spouse will receive the greater of the two payouts. So a decision to take benefits early could impact the spouse as well.
Of course, no one knows how long either spouse will live and the idea of taking Social Security 5 years early is appealing. “Give me some money now since I don’t know if the whole Social Security system will go bankrupt. It will also take approximately 6 to 8 years at the higher payout before the decision to wait becomes the better result in terms of total dollars received and who knows if I’ll live that long.”
Both considerations are valid ones. However, in the whole analysis, what’s missing is any discussion as to how your Social Security benefit impacts long term care. And that can be a huge mistake. Many retirees are – and will continue to – rely heavily on Social Security benefits as a large part of their retirement plan. Getting a few hundred extra dollars a month could have a significant impact on their lifestyle.
But, it is so common for people to look at retirement without any consideration at all of how they would pay for a large long term care expense. Many Americans will not be able to afford to privately pay for very long and may need to qualify for government needs based benefits, the Medicaid program.
Many of Medicaid’s programs have a strict income cap, $2094 per month in 2012. Social Security and pension are typically the income that is looked at to determine eligibility. These amounts can’t be changed. Once you lock into a number, that’s it, except for cost of living adjustments (but Medicaid’s income cap is tied to the same COLA).
We have so often had clients whose income exceeds the income cap by only a few dollars. As a result they are ineligible for many of Medicaid’s community programs that might allow them to stay at home and get government assistance with their long term care needs. So, in considering whether to wait and take a higher Social Security payout, I might want to consider whether that will make a whole lot of government programs completely out of reach for me. That may or may not change my mind but certainly I’d like to know all the consequences before I make such an important and irreversible decision.