70 Is The New 62

What is the best age to claim your Social Security benefits? Most people do so soon after age 62 but, most of us should delay until age 70.

First, four basic points to know about Social Security.

1. You may claim your benefit anytime between age 62 and 70 regardless of when you actually retire. Your benefit is maximized at age 70.
2. For each year you claim earlier than your so-called normal retirement age (66 or 67, depending what year you were born), the benefit is reduced by ~6%. For each year you delay beyond your normal retirement age, your benefit is increased by 8%.
3. For married couples, after the first spouse dies, the surviving spouse receives the larger of the two benefits.
4. It’s the world’s greatest annuity — inflation-adjusted, federally guaranteed, and with a survivor benefit.

In our new inflationary era, the inflation adjustment in point #4 becomes even more important. Maximizing your Social Security benefit is one of the best possible ways to protect yourself against inflation as your benefit is increased each year by the current year’s inflation amount. 

Let’s do some simple math to understand why you should delay claiming to age 70. We’ll assume:

• you’re age 66
• your life expectancy is typical – another 20 years
• your age 66 benefit is $100 per year

If you delay until age 67, you will instead receive $108 per year. You lost $100 of benefits for one year but your benefit will permanently be $8 larger.

How many years do you need to live in order for the extra $8 per year to make up the one-time loss of $100? It is ~13 years. Ignoring the interest on the money, you give up $100 once to get $8 more every year (100/8 ≈ 13). Your annual inflation adjustment will also start with a base that is 8% larger. That will become meaningful over the years.

So, when you turn 66, if you believe you have 14+ years to live, delay your benefit claim. Continue to re-assess this decision through age 70 as your benefit increases 8% for each year you further delay.

For married couples, the recommendation is stronger. You should maximize the larger benefit so the higher earning spouse should delay claiming to age 70. With two of you, there is a greater likelihood that at least one of you will live to an above average age. By maximizing the benefit of the higher earner, you will maximize the lifetime value for the surviving spouse.

There are two circumstances where it may not make sense to delay claiming.

1. If your life expectancy is short. However, if you are married, this decision is not so simple if you are the higher earner and your spouse has a normal life expectancy. It may still make sense to delay to maximize the remaining benefit for the surviving spouse.
2. If you don’t have enough savings and income. If you have no other funds to support yourself, then you may have no choice other than to claim early.

If neither situation applies to you, delay claiming until age 70. You’ll get a larger cost of living adjustment each year and your older self will be grateful that you waited.