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Why It Can Pay Big-Time to Delay Taking Social Security

August 27, 2015 at 12:00 AM

One of the biggest retirement decisions you must make is settling on when you will start receiving your Social Security retirement benefit. While you are eligible to start claiming your benefit as early as age 62, I want you to seriously consider waiting.

Goal #1: Wait until you reach your Full Retirement Age (FRA). Your FRA is somewhere between 66 and 67 depending on your year of birth. You can confirm your FRA here. Your FRA is when you are eligible for 100% of your benefit. If you start payments before your FRA the size of the payment is less than 100%.

Quick quiz: For someone with an FRA of 67, who decides to take an early benefit at 62, how much lower will that payment be:

A. 10% less than if they wait until age 67
B. 25% less than if they wait until age 67
C. 30% less than if they wait until age 67

Answer: C. Start at age 62 and you are locking into a payment that is 30% lower than what you could have at age 67.

Now I know what many of you are thinking: “Hey, I want to get what’s mine. What if I die before age 67? Or soon after. I’ll have lost out on all those payouts.” Fair enough. But for those of you who are in good health, please focus on the bigger risk: that you live a lot longer, not that you die in your 60s. A 65-year-old man today has a 50% chance of still being alive past age 86 and a 65-year-old woman has a 50% chance of being alive past age 88.

Having a payout that will be 30% higher than starting early, is a lot more extra income for what can indeed be a very long retirement!

Goal #2: Have the high-wage earner wait until age 70 to take Social Security. There’s a way to boost your retirement income even more than waiting to your FRA. Rather than start claiming your benefit at age 67, delay all the way to age 70.

Time for another quick quiz:

For someone with an FRA of 67, who waits until age 70 to start taking Social Security, the benefit will be increased by how much:

A. 10%
B. 17%
C. 24%

Answer: C. Every year past your FRA until age 70 that you wait, Social Security will add 8% to your benefit. That’s risk-free and fully guaranteed. Wait three years and you will earn a 24% bump in your benefit. Let me be very clear: there is no investment in the world right now that pays you a risk-free 8%.

For married couples, having the highest earner delay to age 70 (the spouse can begin earlier) guarantees that the surviving spouse will have the largest possible benefit. That can be a huge help for the surviving spouse.

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