Social Security is one of the best things available to Americans. You may question the amount of benefits you receive compared to what you paid in but it was never designed to work like a 401(k). It is a pension where you pay into the system over your working years which then gets converted into a monthly check when you retire that lasts your lifetime.
And not only that, the income is inflation-indexed which means it keeps up with the rising cost of living. It also offers disability protection in case you were to get disabled. And survivor benefits to your spouse and dependent children if you were to prematurely die. There is nothing out there in the private markets to match this combination of guarantees.
But as luck would have it, you didn’t get to use any of the other benefits and are only here to decide when to start receiving your Social Security income. And unless circumstances demand, you should wait till age 70 because each year you wait, the amount you get gets larger and larger.
You could technically choose to receive Social Security by your 62nd birthday. But if you wait till age 70, the monthly check gets larger…77% larger for the rest of your life. Inflation-indexing is based off of that larger amount.
But age 70 is the cut-off. There is no more benefit in waiting beyond that.
Only one in 10 people though wait till age 70. The math does show that you don’t break even till age 83 when taking it at age 62 versus deferring it to age 70.
And you may think you may not be around till age 83 but would be a mistake. Data from American Academy of Actuaries show that a 65-year-old retiree in average health has a 33% chance of living to age 90. That is one in three. 13% would make it to age 95 and 3% to age 100.
And if you look at women, almost half of them who are of average health at age 65 will be alive till age 90. The whole premise of delaying Social Security is about protecting yourself and your loved ones against living a really long time. It is longevity insurance and you should treat it as a key fixture in your financial plan.
But what if you are in poor health and expect to die early? If you are single, by all means, you should claim it as soon as possible. However, if you are the higher earner in a married couple and your spouse is in good health, he or she will effectively receive your benefit after you die so delaying still makes sense.
If the only reason you decide to take Social Security early is because you think it may not be around for much long, that is an excuse and not a strategy. Social Security is not going anywhere, definitely not for anyone reading this.
Thank you for your time.
Cover image credit – Pixabay