When Should You Take Social Security?

This article first appeared on The Rich Investor.

Florida Senator Marco Rubio proposed a plan earlier this month that gives new parents additional paid time off work to care for their children.

That sounds good, of course.

Parental leave benefits are a little on the skimpy side in America, and a lot of mothers and fathers would love to spend more time with their newborns.

There’s a catch though: Rather than fund the additional leave via new taxes or simply by forcing companies to eat the costs, Rubio’s plan would allow the new parents to effectively cash in their Social Security benefits decades early.

In exchange for taking benefits in your child-bearing years, you would accept lower benefits in retirement and might have to work longer (i.e. retiring at 71 instead of 70).

Rubio’s bill isn’t likely to pass. Parental leave tends to be more of a priority for Democrats rather than Republicans, and the current Democrat proposal on the table calls for additional payroll taxes.

Furthermore, Social Security is the proverbial “third rail” of American politics. You touch it at the risk of getting electrocuted.

But let’s say Republicans decide to take Rubio’s proposal seriously and it passes.

Should you take Social Security benefits today in order to spend more time with your newborn?

The answer is “probably.”

My reasoning here is a little unorthodox, so hear me out.

I love Whataburger, a delightfully unhealthy burger chain based in my beloved home state of Texas.

I love the way their hamburger grease bleeds through the wax wrapper, and I love washing it all down with a large Dr. Pepper over crushed ice.

And the fries… I can taste their salty goodness as I write.

Perhaps not surprisingly, my cholesterol is a little on the high side.

My doctor has nagged me for years, telling me I’ve probably taken a good five years off my life by eating as many burgers as I do.

But it’s not like the five years I’ve potentially lost are my hellraising years of 18 to 23. Those years are long gone.

The lost years will (presumably) be in my 80s or 90s, and I’m OK with that.

If I check out at 90 rather than 95, that’s five fewer years of riding in a motorized scooter and yelling at hooligans to get off my grass. I’m not going to miss those years.

So, by all means, take the benefit now and spend time with your new baby. Those years are precious, and if it means you might have to work a little longer, then so be it.

This is why we go to work in the first place.

There’s another element as well. As I wrote recently, I have very little faith in Social Security.

There’s no Social Security trust fund, and the program is essentially a Ponzi scheme.

It’s highly likely your benefits in old age will be curtailed or, at the very least, allowed to lose ground to inflation.

It’s likely better to take a sure thing today rather than hold out for an uncertain payoff later. A bird in hand is worth two in the bush.

The downside to taking Rubio’s offer is that low and middle-income Americans – the ones that depend most heavily on Social Security to fund their retirement needs – are also the most likely to need the money for parental leave.

Taking the money today means lower benefits later.

This could lead to widespread poverty among the elderly a few decades from now, creating a far-bigger crisis that will need to be fixed.

I can’t argue with that logic. But unfortunately, I fear that day is coming regardless of whether Rubio’s proposal is passed.

While I hope to draw Social Security in retirement, I’m not planning on it.

This was my rational when I started writing Peak Income. I wanted to create durable income streams that could fund a comfortable retirement.

As I write, the stocks in the Peak Income portfolio yield an average of 7%, which is more than double the yield you’re likely to find in the bond market, at least if you’re buying investment grade and avoiding junk.