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WHEN SHOULD YOU start drawing Social Security? If folks want to maximize their lifetime benefit, I think the answer is fairly straightforward.
Maximizing lifetime Social Security income isn’t always the goal, of course. Some people need Social Security to meet basic needs. These people usually claim benefits as soon as they reach age 62, the earliest possible age.
Others view Social Security as longevity insurance. They want as much monthly income as possible in the event they or their spouse live a long time. These people typically wait until 70, the latest possible age, to start Social Security.
But for many people, the goal is to maximize the amount they’re likely to receive during their lifetime. Financial nerds often toss around terms like “breakeven” or “cross-over.” More sophisticated analysts consider present values and appropriate discount rates. I like simple. Want to maximize lifetime income? I believe the decision rule is fairly simple.
When I considered Social Security, my goal was to maximize my likely lifetime income. I might die early. Although I have no significant health issues, I am overweight and, unlike Dennis Friedman, I do not exercise regularly.
On the other hand, I might live a very long time. I do have some good genes. My grandmother lived to nearly 112 and my mother is still doing well at 95. I have never smoked and I drink only occasionally.
My decision? My full retirement age was 66. I also liked the idea that 66 was the midpoint between 62 and 70. Although I had retired a few years earlier, I chose to start drawing Social Security at 66.
our planning age is 95 for both of us given our family histories. I’ve read that the probability of both of us living to that age is vanishingly small.
And spouse is 8 years younger, so if I wait until 70 we can decide when she should start hers.
OTOH, I did the math and concluded that if I claim earlier at 65 or so and we both end up reaching planning age 95, I only miss out on around $250k or less had I waited until 70.
Logic tells me that if $250k is the difference between a successful retirement and destitution, we have bigger financial issues. So currently aiming for 65 in about two more years.
For me the benefit of waiting till 70 to start collecting ss is to have the maximum monthly payment possible to cover the potential cost of long term care if I do need it. I have pension and I also wait till I get the max payment as well. Meanwhile I am already retired and don’t need neither of these incomes.
We’re in a position to both wait to 70 to draw SS. My parents both lived to 95 and her mom is still alive (and in reasonably good health) at 98. As far as an inflation adjusted annuity, SS can’t be beat.
What I rarely see mentioned is how to calculate the financial impact faced by those of us in-between. The late-stage boomers who will collect 100% if claiming early, before the projected 23% cut hits, but will hit the 2034 shortfall before their FRA-70.
Although some swear cuts won’t happen, SSA already stated they would as things stand now. So it seems prudent to at least do the math to prepare, if needed.
Say someone delays to FRA-70 for a higher SS check. Will that higher amount be erased by the 23% loss that person will experience on every SS check from the getgo, along w/several lost SS years they could have had at 100%?
I always read that waiting assures more money per check. But not so sure that’s true for those of us in the above group.
Anyone know how to calculate this? Does Open SS address this?
As I understand it, the benefit at age 70 is 32% more than at FRA. So, when one reaches 70, is the benefit amount calculated based on an adjusted PIA – not the PIA amount when FRA was first reached.
Age 70 benefit increases at 8% per year. Only those with an FRA of 66 years 0 months (1954 birth and earlier) will see four full years of 8% increases. For those born in 1957 (FRA of 66 years 6 mo), the increase would be 3.5 times 8% or 28%. 1960 and after will see a 24% increase. As I understand it the PIA will be adjusted for inflation between FRA and age 70.
I took SS at my full retirement age and my wife took hers early (she is 3 years younger). She was a full time homemaker so she gets 50% of mine, minus a small amount for taking it early. We analyzed our options and figured that we would do it this way because it took many years before postponing it would be an advantage. We figured by that time, we would be spending less money anyway. We also are in a fortunate position where we don’t need the higher income waiting until 70 would have given us.
And another consideration. Obvious but worth mentioning. If you’re still drawing a paycheck, do you need SS? Or if you expect to work for many years, should you take SS and, considering it free money, give it to your family or to charity? Or use it to buy Starbucks every day?
I read that only 3% of those eligible for social security wait until age 70 to receive it. It’s a fairly rare occurrence that someone has the health and financial fortitude to wait for age 70.
“Full retirement age” is often characterized as a milestone at which it somehow might make sense to start taking SS. This strikes me as slightly off.
It may indeed make sense to start at or before that date if you have specific reasons to believe you won’t live long, or just can’t afford to wait.
But FRA itself is meaningless for those analyses: You either need the money or you don’t sometime before 70; longevity considerations either apply or they don’t before 70.
I find it more useful to look at FRA as the date at which you enter the “Bonus Round,” where the rewards of waiting start to really pile up!
If objective factors indicate start taking early, FRA plays no role in that decision.
If those factors are not relevant, then the goal is to maximize your time in that ‘bonus round,” and its starting date is a trigger for in-action. Inaction that’s worth celebrating!
Take a look at opensocialsecurity.com.
Check out opensocialsecurity.com, a highly regarded free calculator, to determine the strategy that will result in the maximum lifetime income. You can also determine how much you reduce your lifetime income by choosing different claiming dates. Google open social security created by Mike Piper for reviews of the calculator.
Believe Larry’s decision to take Social Security at 66 was a good call. Despite doing mountains of calculations to determine the “best” Social Security start date, no one knows their date of death. Probably best to wait until full retirement age before starting, but over analyzing in your sixties is unnecessary. Ideally, Social Security is just a part of your income sources in retirement. Took Social Security at 66 and never looked back, and am happy with the choice, that’s all I care about.
Arnold, I think you are exactly right. Many people over-analyze the decision. We don’t know when we will die, so we can never select the “best” date. Select a reasonable date and don’t look back.
Since my father retired at 65 and died shortly thereafter, it was never a problem for me to take SS at 62 and not look back.
I have a different view of SS; it never was a goal of mine to receive it. After all, the talk is that SS will be bankrupt soon. Maximizing my saving and investing during my working years was my goal.
There are many discussions on other sites about when to take SS. If you’re going to be dependent on SS, then I think you should take it when they feel it is right for yourself.
If someone is personally stuck with the decision when to take it, then seek out a CFP or even discuss it with the SS Administration. There is even sources on the internet to help. FWIW, a retiree from the SSA I know through my church has said take it as soon as possible.
SS can’t go bankruptcy, it could reduce benefits, but not bankrupt
I think it is important to consider that loss aversion affects the SS claiming decision. Those who see their friends and neighbors claiming early and enjoying their additional income may also feel the need to keep up with them.
If the COLA for SS continues to be around 7-9% that amount multiplied by a larger amount by filing at age 70 is further incentive to wait for me. There are n’t many -if any- annuities that will boost the monthly benefit to (somewhat) offset inflation.
Even when inflation does subside, the large current adjustments to SS will continue to compound.
Let’s hope inflation does not stay at those levels or we have bigger problems than when to take SS.
Spot on with that comment Mr. Quinn.
Ok, I have to ask, WHY❓Why is it even relevant to maximize lifetime income from Social Security? If you start SS at any age and then die and haven’t maximized what you collect, you won’t know it anyway.
I started SS in 2008 at my FRA and within eight years received all I and my employers paid in taxes during my working years from 1959.
Isn’t the real goal of SS, which effectively is a form of annuity, to maximize the amount of the monthly benefit when income is needed the most?
Every month delayed from a possible start date adds to the $ amount and actuarially subtracts from the duration of payment. If a person delays to 70 because they anticipate needing higher income later in retirement, they take a risk of not collecting a penny. If they start at 62, they risk lower income then may be desirable at 70, but they could accumulate all those payments as an investment if the cash is not needed monthly as income at 62.
I’m just at a loss as to why anyone is concerned about maximizing the lifetime benefits, but I know many people take that point of view.
“Isn’t the real goal of SS to maximize the amount of the monthly benefit when income is needed the most?” No, not for us.
Thanks to a somewhat frugal lifestyle both before and after retirement, regular savings, and fairly smart investing, we are in the extremely fortunate position to know that we will die with money left over. That’s great.
I would like the amount we leave behind, which is going to children and charities, to be maximized. So yes, my goal with SS is to maximize the amount we will likely receive.
Does that mean you are investing the SS benefits to accumulate additional assets? That’s what i did the first several years i started collecting at FRA.
“Isn’t the real goal of SS, which effectively is a form of annuity, to maximize the amount of the monthly benefit when income is needed the most?” No, the goal in retirement is to have the income you need — whatever that sum is — when you need it. That income might come from Social Security, but it might also come from savings, pension income, rental income, home equity and elsewhere. Retirees should be looking across the length of their retirement and figuring out how to tap these various financial resources in a way that meets their needs over their lifetime in the most prudent way possible. Planning to spend a lot in the first five years of retirement — and relatively little thereafter? The right strategy might be to draw heavily on savings in those initial years, while delaying Social Security so you have ample inflation-adjusted income later in retirement and so your surviving spouse is also okay financially. A rule that says “claim when you need the income the most” could lead to foolish decisions.
Yup, total adequate income throughout retirement is what matters. If there are adequate resources other than SS before age 70, then I would say SS is not needed and can be delayed to increase the future benefit as you suggest.
Unfortunately for many Americans SS is a primary, if not the primary source of income in retirement so the take or delay option may not be available.
“If there are adequate resources other than SS before age 70, then I would say SS is not needed and can be delayed to increase the future benefit as you suggest”
I have slightly a different take on this, if you have adequate resources then why wait? My understanding (and please feel to correct/critique) is that the total amount per person is mostly set based on your 35 years of income and the actuarial tables. In other words, amount collected from age 62 through (say) 88 will be the same as amount collected from 70 thru 88.
If you take SS early, then you’re getting a smaller amount spread over a longer period (projected up to one’s actuarial demise date). If you wait until 70, you’re collecting a “larger” amount albeit over a shorter period of time.
A few things to keep in mind: 1) The actuarial tables used by the SSA for setting benefits are based on when folks had shorter life expectancies than they have today; 2) the life expectancy for those who have taken care of their health may be three or four years longer than today’s life expectancies for someone in their 60s; 3) too many people ignore the hit to survivor benefits and hence the impact on their spouse if they claim early and they were the main breadwinner; and 4) the breakeven age isn’t 88 but more like the late 70s, given today’s low interest rates.
I agree, too many people ignore the hit to survivor benefits. And too few people offering advice on SS, discuss the best strategy for married couples. In my case, my SS benefit will be significantly higher than my school teacher wife’s. She took her SS when she retired at age 65. I’m waiting until age 70. If I predecease her, she will be able to start collecting my larger monthly benefit.
Exactly, my wife is 16 years younger than me, so I waiting until 70 to start receiving SS so that she will collect a larger SS payment when I’m gone. Didn’t need the money anyway, since I saved plenty in my 401k and had two Retirement Income Plans (Defined benefit) and collected both “lump sum”. I persevered numerous layoffs over my 38 years, 9mos and 18 day career at my last company with no regrets. GLTA and plan accordingly. Nothing is guaranteed except death and taxes!
Fortunate to plan to draw down other assets and wait til 70 to start SS. A side benefit is that doing so will prevent MRDs from exploding.