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When to claim Social Security retirement benefits is one of the most popular topics on HumbleDollar. It can also be a somewhat controversial topic among retirees. I’ve met many people who are firmly convinced that they made the right decision, despite any facts to the contrary.
I think much of the emotion around the topic comes from the fact that it forces us to contemplate our mortality. The popular concept of “breaking even” is all about getting our money back before we die. I worked with a number of engineers who were single, and the notion of breaking even was important to them.
If you are married, and you care about the financial security of a surviving spouse, the picture is more complex. The surviving spouse gets the higher of their or the deceased spouse’s retirement benefit. Married couples have to consider two lives. Is one spouse much younger, do either have health concerns, or significant longevity in their families?
Social Security benefits need to be considered within a complete retirement income plan. If you have a large pension, or significant retirement assets, the decision is less important. I have a friend – a single, retired engineer – who took his benefits at 62. He was concerned about his many decades of smoking. He’s now nearing 80 and has never spent a dollar of his benefits. He has passed the break even point, so his decision was “wrong”. But he invested the benefits during a period of growth, so maybe he was right.
Social Security’s official title is OASDI, which stands for Old-Age, Survivors, and Disability Insurance. The program was never intended to be an investment. The old-age part is insurance against poverty in our later years. For many retirees it is an essential source of income.
In Adam Grossman’s column today he suggest considering the bonds in your portfolio as insurance agents market volatility. He also mentions Social Security in a similar vein. I agree. Thinking of it as an insurance policy against running out of income in retirement may help make the cling decision a little easier. What do you think?
To me, Social Security is a tax which reduces my standard of living in order to subsidize other people with lower incomes. It’s welfare.
Rather narrow way of looking at it. It provides far more than retirement income. You sound like you will voluntarily decline collecting your benefit.
It’s wealth redistribution, plain and simple. Why would you conclude that I would decline my benefits? That’s a strange jump.
For many years prior to retiring at age 65, I regarded future Social Security retirement benefits as similar to insurance. Those born in 1953 or before had the option of one spouse drawing at FRA, age 66 for us, and the other a spousal benefit. We are about the same age, so I received 50% of my spouse’s benefit for four years, then it was replaced by a larger benefit when I turned 70. I viewed this option as “longevity insurance”. But as the old saying goes, “it takes money to make money”, this option might not be optimal for many others.