An important lever in building your retirement income is timing when you start claiming your Social Security benefits. While you can start as early as age 62, your monthly benefit increases each year that you delay claiming (up until age 70). For example, here is what my payout would be at various claiming ages if I stopped working today*:
By forgoing the potential income during those initial years, I can “buy” a larger Social Security benefit for the rest of my life – essentially an inflation-adjusted lifetime annuity that happens to be backed the US government, as opposed to an insurance company that has a small-but-nonzero chance of failure. There is a big different between $100 a month and $100 month always adjusted for CPI inflation for the next 30 to 40 years. From this WSJ article:
“The very best annuity you can buy is to delay Social Security,” says Steve Vernon, an actuary who is a consulting research scholar at the Stanford Center on Longevity. Mr. Vernon, 67 years old, is himself working part time so he can delay claiming Social Security until age 70.
Did you know that there are now zero insurance companies that sell new annuities that pay lifetime income linked to inflation (CPI)? You can find some with fixed annual increases, but none will guarantee the increases to track inflation. Not a single for-profit company wants to take on the risk of future inflation. Think about that.
For a long time, the most common age of claiming was age 62, as soon as possible. However, this chart from the Center for Retirement Research at Boston College shows that the current trend is that fewer and fewer people are doing that, especially in the last 10 years (hat tip Abnormal Returns). The curve tracks the percentage of people turning 62 that start claim age 62. (This is different than percentage of all claimants, because there is a growing number of 62-year-olds overall.)
I haven’t found any official surveys about the reason for this trend, but here are some possibilities:
- Fewer people “need” Social Security income right away, because they are healthier and/or able to find work for longer.
- The stock market has been going up pretty consistently over the last 10 years, so fewer people need the income to start right away.
- Fewer people “want” Social Security right away, because they expect to live longer or have been educated about the potential benefits of delayed claiming. They want the higher paycheck and are willing to wait.
There are definitely more free tools out there to help you make this decision. My payout chart above was based on mySocialSecurity.gov and SSA.tools and other free calculator is OpenSocialSecurity.com. OpenSocialSecurity actually told me that the optimal choice was for one of us to claim at 62 and the other to wait until 70, so early claiming isn’t always a bad thing.
* Wait, I’m less than 20 years from being able to claim Social Security?! 😱
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I’m nearly 51, so this decision is not that far off.
Through frugality and saving, I really don’t need it, nor do I expect to rely upon SS to fund my retirement. With that said, I’m fairly sure I will start taking it the moment I can get it for two reasons. First, so I can invest it. Second, you never know how long you will live. COLA adjustments are great. But if you can’t figure out how to beat inflation through investing, than you are probably in trouble anyway. 😛
Points to Ponder:
A. Break-Even: It looks like the break-even point is somewhere around 80 years old; meaning, total amount you receive from social security by taking it at 62 or waiting until 70. Those who wait beyond 62, will have a larger social security check beyond age 80. So, review your family genes, health etc.
B. Taxes: if you take on any work, you could be taxed on the social security so wait until full retirement age of 66 or 67 where this goes away.
C. If we live to 100: no brainer – wait until 70 to get the largest amount per year (8% gain per year post 62).
D. Risk: could they change the rules of the game? Do we leverage this and take it early?
I am thinking about part-time work so will wait until full retirement age.
These are the issues I consider. I’ve done a similar break even analysis based on my social security estimate and arrived at about the same conclusion. There used to be language on the Social Security website indicating that on average most people will receive the same total amount of money regardless of what age they apply. I don’t see that the language is there anymore, perhaps because so many were applying at age 62!
I’ll probably wait until full retirement age to apply, mainly to protect my wife with a higher survivor benefit if I were to leave this world sooner than expected — not any concern over getting a higher payment myself.
Jonathan; not to be picky, but I believe the social security estimates assume that you will continue working up to the year you apply for benefits. So if you did retire today, that future projection might not be so accurate. I always enjoy these types of posts — usually lots of differences of opinion.
Yes, the numbers on the official Social Security statement do assume you keep working, but the screenshot numbers that I posted are from the ssa.tools website, which imports your real work history but offers alternative projections based on different future working scenarios. You can adjust your future income and the number of working years. It’s a pretty neat calculator.
I assume the key reason people are taking social security at 62 less now is simply that more people are working longer. I think thats much more likely cause for most rather than timing of SS benefit for value.
For a single individual with no kids; does it make sense to delay claiming? I can see the benefit to spouse with delayed filing but wouldn’t it be better for the single person to claim it ASAP?
Well, for any individual, the final answer depends on how long you live. There are fewer variables if you are single, but how you want to manage your longevity risk is still one of them. I have a relative that is 93 years old and still lives completely independently as a single person w/o kids – drives, cooks, gardens, everything.
I’m waiting until 70 but then I really don’t need the money right now. Trying predict longevity and health is a waste of time. You could have good genes and perfect health and then get hit by a bus…
I suspect those nearing retirement age are the last that have acquired generous company pensions and don;t have as much need to rely on SS