It Pays to Delay

Jonathan Clements

AMONG EXPERTS on Social Security, there’s a broad consensus that most folks should delay Social Security to get a larger monthly check—and yet roughly half of retirees claim benefits at 62, the earliest possible age.

Many of these retirees, I suspect, take benefits right away because they need the money or they haven’t given the issue much thought. What about those who have wrestled with the topic and still insist that claiming at 62 is the right strategy? If the emails I receive are any indication, people believe there are three reasons to take benefits right away.

First, they think the politicians will slash Social Security benefits, so they should get whatever money they can now. Second, they believe they can earn a higher return by taking benefits early and investing the money. Third, they figure their spending will be higher early in retirement, when they’re more active, so it makes sense to claim benefits right away.

My response? First, Social Security benefits may indeed be cut—but it’s hard to imagine any politician hoping to get reelected would cut benefits for existing retirees. Instead, any cuts would likely apply only to those 10 or 15 years from retirement age.

Second, you might come out ahead by claiming your Social Security benefit early and investing in stocks. But given the different level of risk involved, that’s like comparing apples and oranges. A more appropriate comparison is between Social Security and high-quality bonds. Based on that comparison, you’d be better off spending down your bonds and delaying Social Security, assuming you live to an average life expectancy.

What about the argument that you spend more early in retirement? Even if that’s true, that is hardly a reason to claim Social Security early. If you need more spending money, you could always draw more heavily on your savings.

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