For those rounding out their working years, Social Security can be an extremely helpful financial asset. In order to maximize the power of the Social Security payment, the big question is: when should you start to take it? There are five key factors of consideration that will assist you in making the most informed decision to benefit your retirement years.

The first factor is the solvency of the social security system itself. SSA estimates based on current laws show that the trust fund is expected to run dry in 2033, at which point the SSA would only be able to pay 79 cents on the dollar for benefits. Though system changes may take place between now and then to avoid such a reality, those contemplating their retirement outcomes may find it reassuring to opt into a program sooner rather than later, which could potentially mean the difference between being impacted by new rules or bypassing them entirely.

Secondly, interest plays a huge role in social security considerations. Because simple interest increases your monthly payout when the payment is delayed, some people choose to hold off on receiving payments. Since the interest increases at a larger rate after passing full retirement age, some will postpone even further when they start taking Social Security payments. This typically results in retirees using their TSP or other retirement funds while they allow for their Social Security payment amount to grow with interest – but that plan of action is not without its drawbacks. It removes larger amounts of assets that could be earning compounding interest, which many experts recommend against, since compounding interest has greater power than simple interest. Evaluating this trade-off is crucial.

A third consideration — though impossible to predict — is your own longevity or life expectancy. For all Social Security recipients, regardless of the age they begin to take their payments, a break-even point comes where they have received the same amount of money from the government. That point is typically sometime in a person’s late seventies or early eighties. Waiting later to take larger payments may prove beneficial if a person lives beyond that break-even point, but can result in less total money received if the person dies sooner.

Taxation is another important consideration. Though Social Security is not a tax-free income, it is a tax advantaged income. Social Security recipients will receive at least some of their payments – between 15% and 50%, depending on their total annual income – tax-free. This means it may be advantageous to pull from Social Security funds first before withdrawing from traditional TSP or other pre-tax retirement accounts that are fully taxable as ordinary income. Leaving those taxable funds to sit longer allows them to receive more tax-deferred compounding interest.

The last thing to consider when it comes to the timing of Social Security payments is your beneficiaries. Unlike the TSP and other retirement accounts, which can be left to anyone of your choosing, Social Security is typically only able to be left to a spouse. This makes it advisable for those with intended beneficiaries other than a spouse to draw first from their Social Security before touching other conveyable assets that can be left to grow.

Approaching Social Security in an informed and strategic way can make a significant financial difference to one’s retirement years. Continuing to work past full retirement age may mean the ability to receive a full Social Security payment while still earning a full salary, potentially helping eliminate debt and fund other retirement accounts. While each person weighs the factors differently, one thing is certain – Social Security is money earned through a lifetime of hard work. Studies suggest that retiring slightly earlier with less money can contribute to a happier and potentially longer life. Equipped with the right information, everyone can make the decision about Social Security that helps remove the financial worry from the reality of their retired future.

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