I’m 65 and in Debt — Should I Take Social Security Now?

Social security and medicare concept with social security card and pile of money.
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The past three decades have seen a much larger percentage of seniors carrying much more debt into retirement. It’s a toxic recipe that can shrink nest eggs, diminish late-life living quality and turn financial stress into a lifelong affliction. But with a thoughtful and carefully planned strategy, older Americans in debt can leverage their Social Security benefits to enable a healthy retirement without working too far into their golden years.

GOBankingRates spoke with a teacher near the end of his career who concedes that debt will follow him into retirement. Unable to pay it off now and unwilling to work forever, he’s developed a plan for claiming Social Security at just the right time to make his retirement dreams come true.

An Educator Balances Debt, Dependents and Dreams

Alex Jackson has worked as a high school English teacher for 28 years, first in Brooklyn, N.Y., and then at Martin Luther King High School in North Philadelphia for the last 20.

He’s 58 years old and plans to retire in two years — but his debt presents challenges and obstacles.

“I carry a floating $5,000 debt to credit cards, roughly $10,000 in car loan debt and a $140,000 mortgage,” said Jackson. “At first blush, this stripe of debt seems commonplace and easily manageable, but on a teacher’s salary, it often proves a struggle. To compound the above, two of my four children are under 20 and dependent. One majors in philosophy at Temple, and my youngest son is entering his junior year in high school this September.”

Are You Retirement Ready?

Side Hustles Fill the Gaps but Present Challenges

To bring in extra money and contend with his debt and expenses, Jackson launched two gaming websites, Hardcore Droid and Hardcore iOS, to bring in extra money — and if you’ll pardon the pun, it’s been a game-changer.

“The first I started as a hobby 12 years ago,” said Jackson. “The second I opened last year. The older site brings in roughly an extra $1,000 a month, which hits the sweet spot, and is the only reason I can plan for retirement.”

Despite his debt, dependent children, modest salary and ongoing obligations, his strategy is to hold out until his full retirement age before claiming benefits. “I plan to wait until I am at least 67 to collect Social Security, because I plan to earn more than the annual amount where your Social Security check suffers a deduction,” said Jackson. “And, of course, I’ll collect more at 67.”

The Strategy Must Account for Debt — But Also Income and Age

Jackson refers to the so-called Social Security earnings test.

The Social Security Administration (SSA) allows those who claim their benefits before their full retirement age to earn income up to a certain threshold. If they earn more, the SSA temporarily withholds $1 for every two they earn above the limit, which is $21,240 in 2023. If you will reach full retirement age that same year, the income test is much more forgiving, with the SSA withholding $1 for every three earned above $56,520.

There is never an earnings test or any deduction once you reach full retirement age.

The second factor driving Jackson’s strategy — that he’ll collect more at 67 — is based on the SSA’s early retirement benefits reduction. The SSA reduces payments by 5/9 of 1% for each month you claim before full retirement age, up to 36 months, then 5/12 of 1% for every month after that. The maximum reduction is 30%, which would reduce a $1,000 monthly payment to $700 for those who claim when they first become eligible at 62.

Are You Retirement Ready?

The Best Plan Is the One That Works for You

Many people opt for a middle ground of 65, which was historically the full retirement age for everyone. The idea is that they’ll still forfeit some reduction, but not as much as if they claimed at 62 — but they would compensate for the loss by collecting smaller checks for a longer period of time.

But Jackson’s situation proves that each case is unique and that every strategy must be tailored to the individual.

“If I waited until I was 65 to retire from my job, I would earn about 25% more from my pension,” said Jackson. “But I have already dedicated more than a quarter of my life to teaching high school and want to spend my 60s and 70s engaging in a bevy of interests.” He mentioned pursuits like martial arts, spoken word, running websites and writing.

“I imagine that if I only have another quarter of my life left to live, a measure of struggle is, as it’s always been, an essential facet of living your best life.”

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