Most people claim Social Security benefits soon after age 62; most of us should delay. I’ll explain why it’s a good idea to wait until age 70.
First, three basic points about Social Security.
- You may claim your benefit anytime between age 62 and 70 regardless of when you actually retire. There is no reason to wait beyond age 70 as your benefit is maximized at that age.
- For married couples, after the first spouse dies, the surviving spouse receives the larger of the two benefits.
- 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%. The age 70 benefit is ~77% larger than at age 62.
Let’s do some simple math to understand why you should delay claiming. 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 one more year, 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 have been worth the wait? It is about 13 years. Ignoring the interest on the money, you give up $100 once to get $8 more every year (100/8).
So, when you turn 66, if you believe you have more than 13 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 conclusion 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 longer surviving spouse.
There are two circumstances where it may not make sense to delay claiming.
- 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.
- 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, then delay claiming until age 70. Your older self will be grateful that you waited.
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