However, if you are not currently taking social security benefits, there is one thing that nearly everyone can do to maximize the size of their social security check in retirement: delay your benefits.
I know that’s hard for a lot of people to do. You have worked and paid into the system for your entire life. The first thing most people look forward to when they turn 62 is that social security check. And why not? It would be nice to start getting some of that money back.
Before you rush off to the social security office, however, be sure to carefully consider all your options. The decision of when to start benefits will be one of the most important decisions you make in your retirement planning. Don’t take it lightly.
Delaying the start of your benefits could result in a larger monthly check and potentially more money being paid to you over the course of your lifetime. It could also have a profound impact on your spouse’s social security income as well.
How long will you live?
If you can tell me when you are going to die, I can answer a lot of other questions for you. The question of when to begin your social security benefits certainly falls into that category. The longer you live, the more it benefits you to delay social security.
The breakeven point for most people is usually somewhere around age 78. If you live longer, you will get a larger monthly check as well as more money over your lifetime. If you die before then, you may be better off taking benefits sooner.
With few exceptions, no one knows how much time they have left on earth. One of the most common arguments for taking benefits sooner is that when you die your benefits end. So, some argue, take benefits now while you can. If you are confident you will die before age 78, maybe you should. Then again, maybe you shouldn’t.
Even if you die before age 78, when you start your social security benefit will affect the survivor benefit your spouse is entitled to. Even if you are confident the end is near, I still recommend delaying the start of your benefits, if possible. You may get your social security benefits sooner, but it will come at a cost to your surviving spouse in the form of a permanently reduced benefit for them.
It pays to wait
Your social security benefit is based on the amount you would receive at Full Retirement Age or FRA. For me that’s 67. For you it may be between 66 and 67 years of age. I will spare you the gory details of social security math, but the gist of it is that every year you delay your benefit (up to age 70), your benefit increases by about 8%. By waiting to age 70 to take benefits, your benefit could be as high as 132% of the benefit you would receive at your FRA.
Taking benefits before FRA results in a reduction of your benefits. Taking benefits at age 62, for example, may result in a reduced benefit of as little as 70% of the benefit you would receive at FRA.
The $64,000 Question
According to the Social Security website life expectancy calculator, a woman born in 1954 can expect to live another 26.1 years. Her husband born that same year has another 23.4 years to go. Since most people age 60 and older will live to the age of 82 or greater, you may want to think carefully about when you choose to start your social security benefits.
The increased monthly social security check you earned by delaying your benefits will really start to add up as the years go by. Assuming you live to just an average life expectancy as described above, the extra benefits could tally up to over $60,000 or more. Obviously, your exact number will vary depending on your earnings history, when you were born and when you started your benefits, among other things.
The decision of when to start your social security benefits is a big one. And it’s one that will affect your retirement income for the rest of your life. Before signing up for benefits, take some time to consider all your options.
In the meantime, if you would like help with your social security and retirement planning, just Ask Mike.