Make sure math adds up if enrolling in Social Security

Dear Pete: What are your thoughts on taking Social Security once you retire but before reaching full retirement age? For me, full retirement age is 66 years and 2 months. My position will be eliminated when I am 65 and 4 months, so there is a 10-month shortfall. Would you recommend my taking Social Security early or should I use my 401(k) and/or my after-tax investments to cover the 10 months when there will be no income? I plan to no longer work after retirement due to health concerns. — Larry

Dear Larry: You’ve clearly done your research. Those folks born between

1943 and 1954 are able to retire with full Social Security retirement benefits starting at age 66. And for every year after 1954, those filing simply add two months to age 66 to determine their full retirement age until the year 1960 when full retirement age tops out at 67.

Since you told me your full retirement age is 66 and 2 months, then I know you were born in 1955. You’re right that, if you choose to take your Social Security retirement benefits early, you will permanently reduce your benefits under the current rules. If you took the benefit at age 62, your benefits would be permanently reduced by about 25%.

But you’re not looking at taking income at 62, you just want your income

10 months early. In that case, I’ve got good news and bad news. The good news is there’s a calculation for that. The bad news is that the calculation isn’t the easiest math. The percentage reduction is five-ninths of 1% per month for the first 36 months and five-twelfths of 1% for each additional month.

If you were to take the benefit 10 months early, your benefit would be reduced by a total of 5.56% based on the reduction formula. Therefore, if your benefit at full retirement age is $1,800 per month, taking the benefit 10 months early would reduce your benefit permanently by $100.08 per month.

Now it’s time to figure out how you’re going to make this work for you. If you need income during those 10 months (which it sounds like you do) and you don’t want to take the reduced benefit, then you will be forced to find $18,000 until you reach 66 and 2 months.

That is, of course, if you truly need

$1,800 per month to survive. Frankly, it behooves you to find a way to withdraw less during this time frame. Going by the latest guidelines on retirement withdrawals, you should have approximately $540,000 in retirement assets, which would then allow you to draw down only

4% (a debatably safe rate of withdrawal during retirement) of those assets during this 10-month period.

If your health concerns are severe enough that you fear your retirement will be a short one, then you might consider taking the early benefit and preserving your personal assets for your heirs. The longer you think you will live, the better off you will be waiting to take Social Security. It’s much easier to take

$100.08 per month out of their future inheritance each month than it is to take

$1,800 per month for 10 months at the very beginning of your retirement.

Think of it this way: Taking the benefit when your job is eliminated means you will only need to supplement your income with your assets for about

$1,200 a year.

There are several opinions about when to take Social Security benefits. I don’t particularly believe in Social Security rules of thumb because everyone’s situation is different. Your decision on when to take your benefit should be based on a few different factors: your health, your spouse’s health, your income sources and your asset levels.

My opinion is you should take your Social Security benefits early. But ask five other financial people, and you’ll likely get five different opinions.

Peter Dunn is an author, speaker and radio host, and he has a free podcast: “Million Dollar Plan.” Email him at AskPete@petetheplanner.com.

The views and opinions expressed in this column are the author’s and do not necessarily reflect those of USA TODAY.