In a recent article from the Wall Street Journal, advisors debate the benefits of retirees delaying Social Security until age 70. Do you accept a smaller amount by choosing benefits at the first year of eligibility-age 62? Or do you defer until age 70 and receive the maximum payment based on your salary history?
The article uses an example to help illustrate the comparison between waiting until age 70 or receiving it sooner. “Say you are a 65-year-old man who starts receiving benefits. Up until the age of 84 (your average life expectancy), you will have earned more income in total than if you had started to collect at age 70. But if you make it past 84, then waiting until age 70 is most likely the better choice.”
By waiting until age 70, your benefit will increase by 8% with each passing year that you wait from Full Retirement Age (FRA) until 70. If your FRA is age 66, that’s like receiving a 32% raise over those 4 years! Why collect early and risk putting your benefits in the stock market when you can receive a guaranteed 8% per year return until age 70 on that money?
On the contrary, the hard truth is that waiting until age 70 may not be an option for most retirees. The recent 2008 market volatility left most with fewer retirement assets saved for the future. By collecting early at FRA, you can help supplement your monthly cash flow and invest the excess for a possible increase in your portfolio. Additionally, there have been doubts about Social Security’s stability in recent years. Congress could increase taxes or lower the cost-of-living adjustment for benefits in the years to come. It is believed to be a system of depleting resources where younger generations are assumed to receive only a portion of what they paid in.
The reality is that every family and financial situation is unique. Needless to say, no one knows exactly how long they will live. Understanding your financial situation and needs at retirement will help you and your advisor make the best decision for your family. But one thing remains true, with recent economic uncertainty, decisions about Social Security become more and more important every year for retirees.