Why it pays to wait for Social Security

by Badgley Phelps | Mar 01, 2019

Jeff Walters, CFP®

The Social Security Act was enacted in 1935 during the Great Depression and has been amended several times since then. Social Security is the largest source of income for about half of current retirees and is an important component of most retirement financial plans. One of the principal decisions in your retirement planning is at what age you should start to receive Social Security benefits. The claiming decision can have a significant impact in determining the amount of income received throughout retirement, especially if you or your spouse live for a long time.

Reasons to wait

While you can receive Social Security as early as age 62, the monthly benefit will be substantially lower than if you wait until your full retirement age. Your full retirement age is determined based on your date of birth. For example, assuming your full retirement age is 67 (applies to anyone born in 1960 or later), choosing to receive your benefits at 62 would permanently reduce the payment by 30 percent.  Working (or waiting to collect) past your full retirement age will result in a permanent benefit increase of about 8 percent annually until age 70. While there is no “correct” age for anyone to start Social Security (none of us know how long we are going to live!), we generally recommend that clients who are healthy and have other financial resources personally fund the early years of retirement and wait until age 70 to collect. The break-even age, or the age that total benefits received equal the same amount at different ages, for waiting until age 70 to collect benefits is around age 83. In other words, prior to turning 83, you would have been better off collecting benefits earlier than age 70. If you live longer than age 83, then waiting pays off.

For a couple age 65, there is a 45 percent chance that one of the spouses will live to age 90 and an 18 percent chance that one of the spouses will live to age 95 (Vanguard). Social Security decisions should be made with the longevity of your spouse in mind. When one spouse dies, the higher of the two spouses’ Social Security checks becomes the surviving spouse’s benefit. Because there is a high chance of at least one spouse living past the break-even age of 83, it can make even more sense for couples to wait until age 70 for at least one of them to start receiving their benefits.

Reasons not to wait

The majority of Americans choose to take their retirement benefits at age 62. There are some good reasons for this. For most, this is simply because they need the money and do not have other significant financial resources to fund their expenses from age 62-70. Another reason to take benefits early would be if you expect your life expectancy will be shorter than age 82-83 due to a known medical issue or family history.

Ultimately, the timing decision should be made within the context of your overall financial plan and take into account your unique situation. For example, it is possible to collect Social Security based on an ex-spouse’s earnings history if certain requirements are met. If you have questions or would like to model how different claiming strategies would impact your retirement, consider talking to one of our financial planners.



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