Social Security

Why the Age at Which You Claim Social Security Benefits Might Not Matter

Does the age you start Social Security matter all that much?

Social Security benefits are actuarially equivalent ( but may need updating). Take reduced benefits at age 62 and chances are you will collect benefits longer. The opposite is true at age 70.

If your objective is to maximize the total you collect in SS benefits, then age doesn’t matter unless you live far less or far longer than most other Americans. But I suggest you should rethink why that is your goal. Either you are here or not so why do you care if your total benefits are more or less?

It’s really a matter of when you need the money and what you are going to do with it.

Consider this from the Motley Fool

To see how this plays out in practice, let’s consider a hypothetical example.

Say your FRA is 67, and based on your income over your career, you’d receive $1,500 per month in benefits if you file for them at that age. If you claim at 62, your checks will be reduced by 30%, leaving you with $1,050 per month. If you wait until you’re 70, you’d receive 24% more per month or $1,860.

The average life expectancy in the U.S. today is 78.6 years old, according to the Centers for Disease Control and Prevention.

So if you live until, say, age 80, here’s what your total lifetime benefits would look like depending on what age you began claiming them:

Lifespan Total Lifetime Benefits

When Claiming at 62 Total Lifetime Benefits $226,800

When Claiming at 67 Total Lifetime Benefits $234,000

When Claiming at 70 Total Lifetime Benefits $223,200

In this example, you might come out slightly ahead by waiting until 67 to claim. But you’ll still only receive roughly $7,000 more over a lifetime than if you filed for benefits at 62, and that small difference may not be worth the wait. Then consider the $10,800 less you’d receive by waiting until 70 to file.

Source: Why the Age at Which You Claim Social Security Benefits Might Not Matter

13 replies »

  1. Happy thanksgiving everyone!

    Could it really be that simple, just throw a dart?

    Well, if that were true, we should amend Social Security so that it would insulate people from making a bad decision. Asking everyday workers at advanced ages to make a once in a lifetime financial decision seems inappropriate and penalizing. Talk about creating widespread buyers remorse! If a worker claims early, and it turns out they would have benefited by delay, why not top up their benefit? If they claim late, but die early, why not pass along the “savings” to Social Security from making the wrong decision to the decedent’s beneficiaries? Whose money is this, anyway?

    But, that’s not gonna happen.

    So, let’s look at the current system.

    RULE #1: IT IS NOT WHAT YOU GET THAT COUNTS, IT IS WHAT YOU GET TO KEEP, AFTER TAXES.

    The Fool (and I do mean fool) writer ignores the following considerations:
    • Wage income by the worker prior to SSNRA,
    • Investment earnings on Social Security benefits paid,
    • Taxation of Social Security benefits,
    • Whether the Social Security benefit is needed to pay debts, maintain the pre-retirement standard of living, etc.
    • The impact of other taxable income for every year of your retirement (whether from wages or retirement benefits), and for those who file joint income tax returns, the income of a spouse,
    • Medicare Part B and Part D income surcharges.

    RULE #2: AS THE SOCIAL SECURITY REP AT MY PRE-RETIREMENT PLANNING SEMINARS WOULD SAY, YOU TELL ME THE MONTH AND DAY YOU WILL DIE, AND IF MARRIED, YOUR SPOUSE WILL DIE, AND I WILL TELL YOU WHAT DECISION IS PROBABLY (NOT CERTAINLY) BEST.

    RULE #3: ONLY THOSE WHO CAN PREDICT FUTURE CHANGES TO SOCIAL SECURITY AND MEDICARE BENEFITS, TAX RATES, INVESTMENT RETURNS, POST-BENEFIT COMMENCEMENT INCOME/WAGES, AND DATES OF DEATH, ETC. CAN ACCURATELY IDENTIFY THE CORRECT DECISION.

    Unfortunately, the dynamics of Social Security are very complex, and the right decision may be less the result of comparing benefits with different start dates than incorporating other personalized, customized financial and health information. For example:
    • Those whose only source of regular, monthly, “guaranteed”, “inflation-indexed” income comes from Social Security may want to consider seeking payment from their retirement savings and delay commencement of social security as a form of annuity purchase.
    • Most people who don’t need Social Security to make ends meet, end up paying taxes on 85% of their Social Security benefits, often at higher marginal income tax rates (federal and state), as well as triggering Medicare Part B and Part D surcharges. So, a delay may make sense if other income will be less in the future (if more money is needed in the future than today). On the other hand, there is something to having more than enough money to enjoy travel, etc. while health is good.
    • Delaying benefits to age 70 means delaying not only your benefit but that of your spouse as well. If she/he is the same age or older than the worker, it is important to remember that the credits for delay do not apply to the spouse’s benefit (do not apply to one third of the household’s benefit).
    • Remember that the reduction for the spouse’s benefit (where commencing prior to the spouse’s social security normal retirement age) is even greater than the reduction for the worker (the maximum reduction for a worker whose SSNRA is 67 would be 30% for commencing at age 62; for a spouse with a SSNRA of 67, the reduction for commencing at age 62 is 35%.
    • No, it is not true that “… delaying the start of SS will provide a higher life survivor annuity. …” if we are talking about delaying commencement after the worker’s/spouse’s SSNRA’s.

    This is one of those decisions where personalized, customized expert advice is probably worth the cost. But, even then, everything they could provide (calculators, financial planners, actuaries, etc.) involves assumptions and predictions of the future.

    If you are a do it yourself kind of person, consider starting with:

    https://opensocialsecurity.com/ (free)
    https://maximizemysocialsecurity.com/ ($40 per household)
    http://socialsecuritysolutions.com/ (~$20 – ~$50)

    That seems like a modest price to pay. You might try all three and see how their answers compare.

    Or, ask your financial planner to invest in one of these, or all of them, and provide you guidance.

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  2. Excellent post topic and excellent discussions of things to consider – by all here.

    One thing I would add for anyone applying these considerations of when to start taking Social Security, is taxes – both Federal and State/Local.

    For example, suppose someone prudently elects to work for as long as they can, maximizes their traditional IRA contribution, AND elects not to take SS until age 70. Understand that BOTH your IRA Required Minimum Distribution (or any traditional IRA distribution) and your SS income are fully taxable. And, since both are/would be “maximized” in this scenario, so would your tax bill – irrespective of tax bracket. Especially so, since your “maximized” income is also not flexible – you can’t take LESS than your SS and RMD. You are thereby “locked” into your tax exposure as well.

    Taxes are inescapable. For some, even nearing retirement but still working, it may be worth also considering strategies involving moving your TAX liabilities to the “now” (while you can afford them), rather than having them be a burden and drain on income in retirement, as in the example I mentioned. One method of doing that is to either contribute to a Roth IRA directly now, or consider incrementally converting part/all of a traditional IRA into a Roth IRA – incurring the tax “penalty” NOW, rather than being locked into a taxable income/tax structure in the future.

    As noted here by all, there are a huge realm of things to consider when pondering the choice between “now or later” regards taking SS. Just don’t forget to consider taxes as well.

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  3. I did the math and started SS benefits for my wife and I at 62. Being low income and in debt it just made sense. In just 18 months I have paid off $20,000 in debt and now the SS money is going into the bank every month. I have saved hundreds of dollars in interest payments, so any loss of SS benefit dollars in my 80s is well worth it.

    I read a lot of financial publications and watch the financial experts on TV and they all say wait until FRA or 70 for the bigger check. But, they do not have to live on $20 K per year while waiting for that bigger check. I am living much better with $37,000 per year in retirement income and my savings account balance is going up every month. Next year I will be looking to invest my SS dollars in the stock market once my emergency fund equals $10 K. I bet over the next 20 years my gains will be far greater than waiting for the bigger SS benefit check.

    Since no one knows how long they are going to live, I just wonder how many people who wait for that bigger check, die before they even get one check. My dad waited until 65 and died in a car accident at 66. By not taking his benefit at 62 my dad saved SS 20,000. My wife and I will be saving SS $40,000 if we live to be 85. Everyone should do their part and take their benefit at 62 to save SS money, LOL!

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  4. One more factor to consider is what you may want your survivors to inherit. If you don’t need social security to live on at age 62, if you do start collecting it early, what you accumulated will be there for your survivors.

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    • True, but on the other hand, delaying the start of SS will provide a higher life survivor annuity. Question is are survivors better handling lump sum or an annuity. Assuming a spouse.

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      • If you can live on social security and not your 401K or IRA, your heirs can inherit them. Only your wife can continue with social security benefits. So whatever you do not withdraw from your investments, your heirs may get. Estate planning is also part of retirement planning.

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  5. A few years ago I realized that the money was the same if you live to the average age of 78. One side of my family history is that I will most likely live into my 90’s while the other half says that I might make into my 80’s.

    Fortunately, I do not need social security to live on. I am going to use it as an inflation fighter. My wife might claim first at 62 since it will be a smaller amount. I might hold off until a later time like 67 to 70. Or I might just be lazy and claim at 65 so that medicare can be withheld if I understand my options on what and how I can pay for my part of medicare (still 8 years off)

    But then again, since I do not need it, maybe I’ll get it early so that I can up my travel budget while I am still mobile. What good does it do to have a lot of money at 85 if you can’t travel assuming that you don’t need it?

    There is no one size fits all answers other than to take it when you need it and if you are going to need it, then you better work longer than 62.

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  6. As you probably know, if you use an average life span of close to 90 or 100, there is a greater difference, however I believe how long you will live is not as significant as how quickly or whether you may need the need the funds to live.

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  7. I thought the difference was greater. When you factor in the time value of money and potential investment gains from claiming benefits earlier – the difference should be even less.

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      • There are many variables in the decision when to take social security but whether you need the money to live on is the first step in the decision tree. Everything else is secondary.

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    • I think this article is missing the main decision point. If you have decent amount of savings in your retirement plans, is it better to delay claiming Social Security and spend down your own savings? This shouldn’t be driven by the total lifetime benefits based on an actuarial table. There is a real (and huge) value to getting a higher monthly check that adjusts for inflation and is guaranteed to arrive for the rest of your life (no matter how long that may be).

      Liked by 1 person

      • Excellent point. Even if you take the RMD from your IRA or 401K, and put that the money into another investment vehicle of low to moderate risk, you may have a higher ROR than inflation thus helping to preserve your savings instead of spending down your principle until you really need it. The social security COLAs do not alway match actual real world (as in what you actually buy) inflation so you could still have less money and or buying power. Why not use social security payments to extend the time your investment can sit. Can you imagine how many people missed out on this year’s market ROR?

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