Confused about taking Social Security at 63 vs FRA - tax implications on investment income?

Taking SS at 63 can work, but the investment strategy has risks. Yes, your MM interest counts as income for SS tax purposes. For 2025, joint filers start seeing SS benefits taxed when combined income exceeds $32,000 (50% taxable) and $44,000 (85% taxable). The math often favors waiting until FRA or even 70 if you're healthy. Your benefit increases about 8% per year after FRA. That's a guaranteed return hard to beat in the market. Moving money to an IRA now won't help with taxes on existing SS payments. At your age, traditional IRA contributions are limited anyway. A better strategy might be looking at municipal bonds for tax-free income.

I started SS at 62 and REGRET IT SO MUCH!!!! Nobody told me how bad the taxes would be when combined with my wife's income and our investments. We're getting KILLED on taxes now and there's NOTHING I can do about it. Once you start SS early you CAN'T TAKE IT BACK after 12 months! Your money market interest will 100% count toward making your SS taxable. The $32k-$44k thresholds the other person mentioned are right. But remember that's COMBINED income - so your wife's earnings + your investments + 50% of your SS benefits. If I could do it all over, I would've waited until at LEAST my FRA.

The investment strategy your friend suggested can work in theory but has significant practical challenges. Let me add some considerations: 1. Interest from money market accounts absolutely counts as income for determining if your Social Security benefits are taxable. This is part of your "combined income" calculation (AGI + nontaxable interest + 50% of SS benefits). 2. For married filing jointly in 2025, if your combined income is between $32,000-$44,000, up to 50% of benefits may be taxable. Above $44,000, up to 85% may be taxable. 3. Moving money to an IRA at your age has limited benefits since you're already approaching RMD age. Traditional IRA contributions would give a deduction but create future RMDs. Roth conversions might be worth exploring if you expect to be in a higher tax bracket later. 4. Consider Qualified Charitable Distributions after age 70½ to reduce taxable income. The 8% guaranteed return from delaying benefits after FRA is hard to beat consistently in the market when accounting for risk. Your wife's strategy to wait until 70 makes sense as the higher earner.

i took ss at 62 cuz i needed money now not later lol. everyones situation different. your brother knows finance stuff so maybe listen to him? i dunno about all this tax stuff tho my ss is small so i dont pay tax on it

My situation was similar to yours! I decided to wait until my FRA (66 and 4 months) and I'm glad I did. With your substantial savings, do you really need the SS money right now? If not, waiting gives you a guaranteed 7-8% increase for each year you delay. But to answer your specific questions: Yes, money market interest counts toward provisional income. For married filing jointly, 50% of SS becomes taxable at $32,000 provisional income and 85% at $44,000. But the REALLY important question: have you run calculations on what happens to your WIFE'S survivor benefit if you take early SS? If you pass before her, she'd only get your reduced benefit amount as a survivor. Something to consider.

My parents were in this exact situation! Mom took SS at 63, dad waited till 70. Honestly, I think it depends on your health and family history. If people in your family regularly live into their 90s, waiting makes more sense. But if not, taking it earlier might work out better. Just wanted to add that money market interest definitely counts as income. My mom got surprised by this and it pushed some of her SS into the taxable range.

Wait! Nobody's talking about the EARNINGS TEST! If your wife is still working and you're under FRA, your benefits could be REDUCED if your household income is too high. In 2025, I think the limit is around $22,320 if you're under FRA. For every $2 you earn above that limit, they take away $1 of benefits. Also, that advice about investing your SS to make up the difference by FRA seems RISKY to me. What if the market crashes right after you invest? Then you've locked in that permanent reduction AND lost money. Just something to think about.

Thank you all for the incredibly helpful responses. I clearly need to reconsider my plan. The points about survivor benefits for my wife and the tax implications of our combined income are especially eye-opening. It sounds like with our money market interest, we'd definitely be in the 85% taxable range for SS benefits. I'm going to sit down and run some more detailed calculations on the long-term impact of waiting vs. taking benefits early. And thanks to whoever mentioned Claimyr - I've been trying to reach SSA for weeks with no luck, so I'll check that out too.

Great discussion here! As someone who went through this exact decision process last year, I wanted to add a few practical considerations that might help: 1. **Tax planning opportunity**: Since your wife is the higher earner and delaying until 70, you might actually benefit from taking SS at 63 if you can manage the tax burden strategically. Consider doing Roth conversions during the gap years before her benefits kick in - you'll have lower combined income during that window. 2. **Sequence of returns risk**: Your brother-in-law's investment strategy assumes you can consistently beat that 8% guaranteed return from delaying benefits. But what if we hit a bear market right after you start taking benefits? You'd be selling investments at a loss to supplement the reduced SS payments. 3. **Medicare considerations**: Don't forget that you'll be eligible for Medicare at 65 regardless of when you take SS. Factor those premiums into your calculations. 4. **State taxes**: Depending on your state, SS benefits might be tax-free at the state level even if federally taxable. This could affect your overall tax strategy. The survivor benefit impact others mentioned is HUGE - if you pass first, your wife would be stuck with your reduced benefit amount for life. With her being the higher earner, this could significantly impact her financial security. Have you considered splitting the difference and waiting until your FRA at least? That eliminates the permanent reduction while still getting benefits earlier than 70.