I received this information in an email from Jeffrey Voudrie, author of the website, Guarding Your Wealth. You can subscribe to his email newletter by clicking here (be sure and tell Jeffrey that JLP sent you). I highlighted the parts that I thought were important.
When To Start Social Security Benefits
Conventional wisdom and many financial planners say that you should start taking Social Security benefits as soon as you are eligible. For many, that is at age 62. This is another time that conventional wisdom may be wrong. Read on to see whether you should delay receiving those benefits.
A bird in the hand is better than two in the bush, right? There’s no guarantee that you will be able to catch the birds in the bush and you know that you already have a bird in hand. If that bird represents your next meal then you’d be a fool to let it go in hopes of catching several birds in the bush.
On the other hand, if you have enough birds in the freezer to feed you for several months it might be worth taking the chance on the multiple birds in the bush. Better yet, is there a way you could have both?
If the bird in question is your social security benefits, you may do better waiting for the birds in the bush. This is especially true if you have enough money in savings to meet your needs for the next several years. Even if it means spending down your principal to postpone the date you start benefits, you may be far ahead in the long run. You’d get the bird in hand and the ones in the bush!
On the other hand, if you aren’t able to meet your needs based on what you’ve set aside, than the bird-in-the-hand (taking benefits at age 62) is the better choice. Regardless of when you start Social Security payments, make sure you don’t delay receiving Medicare.
Conventional wisdom says that you should take benefits at age 62 because you can invest that money and earn a better return then Social Security does. We’ve all heard how the average return on the Social Security Trust Fund is only 1%, right? Wrong.
You can earn a guaranteed 8.25% per year by delaying when you start receiving benefits from age 62 to age 66. And it doesn’t depend on what the stock market does. It doesn’t matter what happens to interest rates.
Taking benefits at age 62 results in receiving only 75% of the amount you would get if you wait until you turn 66. Every year you wait, the amount you receive increases. By waiting until age 66, the annual increase averages 8.25% per year.
The average annual return you are guaranteed by waiting until age 70 is 10% per year. Benefits increase 8% every year past age 66. Waiting from age 62 to age 70 results in monthly payments that are 81% higher.
If you or your spouse lives beyond age 79 then you will be better off delaying benefits. Average life expectancies indicate that roughly 50% of those age 62 today will live beyond age 80. Medical advances will only increase that over time.
The risk of delaying benefits is that the main breadwinner may die prior to your breakeven age. That would still result in higher monthly payments to the surviving spouse who may live much longer. You can also use low-cost term life insurance to make up for the lost benefits.
Many of those retiring today have not set aside enough to provide for themselves and their spouse for the rest of their lives. Some face the prospect of draining their retirement savings and living just off of Social Security if they live beyond their 80’s. Even if you will use up your savings more quickly in the short-term, delaying the start date until age 70 could significantly improve your Social Security lifestyle.
There’s no way to tell with certainty what the best decision is for you because none of us know our life expectancy. If you think, based on your family history and present health that you will live beyond age 79 and you have enough assets to provide the money you need until age 65 or 70, then you may want to wait.
Some insurance companies recommend buying an immediate annuity to provide a payment equivalent to what Social Security would otherwise provide, but I don’t recommend that approach. Such annuities are expensive and cause you to lose control, access and flexibility of your money.
In addition to being a nationally syndicated columnist and Certified Financial Planning Practitioner, Mr. Voudrie provides personal, private money management services to clients nationwide. Read more financial and investment articles or get a personal response to a financial question.
This is definitely something to think about. Of course it’s still decades away for my wife and me but we’re planning to put off receiving Social Security as long as possible. It’s also our plan to not need Social Security in the first place since there’s really no guarantee that the program won’t be means tested by them.