When It's Wise to Delay Taking Social Security

We've discussed back and forth through the years about whether or not it's wise to delay Social Security payments (or, said another way, not take them early). Ultimately, it most depends on how long you'll live -- a question that no one knows the answer to. Ugh.

But the book The Charles Schwab Guide to Finances After Fifty: Answers to Your Most Important Money Questions offers us a short list of when it's wise to delay payments. Their thoughts (based on an economic study) find that gains from delaying are greatest:

• When interest rates are low
• For married couples relative to singles
• For single women relative to single men
• For two-earner couples relative to one-earner couples
• For a married couple, deferring the primary earner's benefit as compared to the secondary earner's benefit

For me I think it's a no-brainer to delay. I won't need the money and I plan to live a long time. :)

Well, at least the first part is true, so it makes the decision easier for me.

How about you? Do you think you'll wait or take Social Security early? Why or why not?

Comments

[SJ]

Unless I don't understand it (very possible) it seems every year that a person delays benefits increases annual payout by 8% (and thats over the inflation adjustments, so thats a real 8%). Given how difficult it is to make 8% real, I see 3 resulting scenarios. 1) they need the money, so take it earlier than 70, 2) they don't need the money now but believe they may need it later in life to maintain SOL, then delay for as long as you can, and 3) they will never need the money even if living to 120, so this decision is merely effecting the size of the resulting estate. For this one I think SS has probably been at this long enough to be pretty good at making things all even out for the average, so it comes down to deciding if you are of better than average health or less than average health.

I hope to be a 3 but maybe a 2 when the time comes, so my plan for now is to wait till 70.

All that said I agree it gets even more complicated for couples, especially when the spousal benefit comes into play and this is not all as straight forward. Fascinating how many people make these critical decisions every day with no info whatsoever.

[K D]

Right now my husband loves working so we haven't discussed this (he'll be 57 in a few months). I will check out the book (first at the library) because I don't know a lot about secondary earner's benefits.

A friend of mine start SS when she turned 62 this year. She saves a little but mostly plays with the money she gets each month.

[Paul]

Since my last child was born when I was 50 years old, I plan to work until I am at least 68. My job as an electrical engineer is not physically taxing, and it isn't uncommon in my company for engineers to continue working full time into their 70s. In fact, we have more septagenerians than 20-somethings in our workforce (partially due to lack of supply of US born, security clearance eligible engineers). So of course I am going to delay taking social security.

[Susan]

I would love to work until I'm older, I'll be 62 next year, but since I've been diagnosed (3 years ago) with a very serious medical condition, I most likely will take it out next year and if health allows, work parttime. C'est la vie.

[Old Limey]

I retired in 1992, age 58, and we both took our SS at age 62 rather than delay it. It wasn't an obvious choice but in retrospect I am glad I did it. It meant that from 1996 onwards we were able to save a lot more money and build up our investments.

After we retired we consolidated all of our investments at Fidelity and at the start of 1993 we had $320K.
=====

By 1996, even without SS income they had grown to $757K.
The period from 1993 to 3/6/2000 included the major part of the DOT.COM bubble.
When it finally burst and I had moved our investments into the shelter of bond funds they had grown to $3.309M.
======

Thus in retrospect I did the right thing by having more money to invest during what turned out to be the most lucrative years of my life which were January 1993 to March 2000.

[M9]

My wife and I plan to take benefits as early as possible for two reasons. 1) 85% of the S.S. benefit is taxable beyond $34K/yr in earned income (this includes IRA, 401(k), 457(b), etc. withdrawals). 2) the ‘break-even’ for taking early benefits (62 at 70%) to our regular payout (67 at 100%) is age 78. Not only is the risk for an early demise now '0' for 15 years (not just once, but twice for each of us), but we feel the utility value of a few hundred dollars a month in extra benefits after age 78 is lower than in earlier years. More info on the taxation of SS benefits here: http://www.bogleheads.org/wiki/Taxation_of_Social_Security_benefits

[Roy]

For me the big question is will S.S. be able to maintain benifits or will they be reduced in the future? Do I trust the Government or the Equity Market? So far the markets have worked for me so why change something that isn't broken? I think I will keep as much of my money invested as I can for as long as I can.

[JeffinWesternWa]

Single (age 54) and (as of now) over $550K~ (avg rate is 1+% above CPI - tax defeerred) in I Bonds, also $750K~ in an IRA (must w/d as of 701/2) and the SS decision...these are 3 piles of money that must start being liquidated (though not spent) by age 71~. My thought is: the IRA is in a variable annuity with a "living income guarantee" which provides 7% w/d of highest balance annually (that locks in), in today's $750K that's almost $53K a year and I'm paying for the privledge through expenses of the insurance co. Keeping the I Bonds growing (some are at 3% over inflation) seems prudent till the end. So, I must start absorbing money from these 3 pots by age 71 at the latest. Delaying SS till 70 and getting that 8% annual increase over age 67 (my NRA) seems prudent, then take the Bonds too. Start teh Annuity w/d at about age 60. Stillhave another non deferred $850K~ in cash and oeer $500K in equities plus my home is paid for. Two government pensions, one is tax free. Great health, pretty good longevity in genes. No need to leave (any) large estate behind...nice dilemna!

[Kathy]

My paranoid, conspiracy theory belief is that someday the government will impose a means test, or raise the retirement age again so that if you aren't already receiving SS, then either you will be disqualified from receiving benefits, or at a minimum have to wait even longer to get them. I figure if someone is already receiving benefits, they won't be cut off. So, I'm going to take mine at age 62, even though the actual dollar amount won't amount to very much. I had very little work covered by SS so benefit won't be big at all.

[elb]

ASAP. No question.

[Matt]

All depends on what happens over the next 10 years when I hit 62.

The only consistent thing is change.

[Sarah]

Hopefully delay as long as possible--but, realistically, I am much too young to have any reliable idea of how long I will be able to keep working.

[Erik]

I plan to delay but like the article says it will depend on current interest rates and inflation. Deferring is similar to buying a fixed annuity where the lump sum payment is the lost income for that year. In today's environment the 8% is a an obvious winner to what you can buy in the immediate annuity environment.

Looking at it another way, I plan to defer as waiting is buying 'living long insurance'. We all buy life insurance and hope to not need it while we are young. Why not buy longevity insurance so that if you live to 90+ there is a nice guaranteed income stream?

[PEG]

Paul,
When you are full retirement age, apply and suspend your social security and your children 19 and younger who are still in high school will get social security benefits.

[crashdamage1957]

I think it all boils down to simple math, and then one big gamble. if one looks at the actual numbers from the SSA site to determine the benefit at age 62 vs the benefit at you full retirement age, and use those two numbers to calculate the " break even" amount. That will tell you how many months you will need to live past the full retirement date until you make up the difference of waiting vs collecting early. Then comes that big gamble: how long do expect to live? Hopefully, the answer is "a very long time" and you enjoy many months of quality life and many months of getting that eagle.

[Jerry Broussard]

I agree with Schwab's reasons for delaying SS. However, most don't realize that the Social Security has been calculated to give you the same amount no matter when you withdraw. So if you begin withdrawing at age 62 or you wait till age 70 and you multiply the monthly payment times your life expectancy it will be pretty close to the same amount. But the reasons described above from Schwab will allow you to gain some advantages (or loopholes) that Social Security has in left the system to your advantage. "File and suspend" is probably one of the most under used loopholes in the system that couples should use to their advantage.