Most workers should delay their Social Security benefits as long as possible – even past full retirement age. Why? Social Security acts like a guaranteed inflation-protected annuity. By delaying your benefit to as close to age 70 as possible, you will start out with a larger payment that will last not only for your lifetime, but for the life of your spouse (assuming your benefit is bigger than your spouse’s benefit).
Each year you delay taking benefits between ages 62 and 70 your benefit grows by 8%. A benefit worth $18,000 if begun at age 62 can instead turn into a benefit worth $31,680 if delayed until age 70.
The bigger benefit becomes very important later in life. You may outlive your savings, but you cannot outlive your Social Security benefit. And it is possible that you will outlive your savings: half of all women age 65 today will live beyond age 88, and half of all men will live past 85, based on statistics collected by the Society of Actuaries.
What’s more, once you start taking Social Security, your benefit will be increased in the years when inflation grows. Starting with a bigger benefit will make those inflation adjustments larger. A 2% inflation adjustment on an $18,000 benefit is worth only $360, but on a $31,680 benefit it is worth $634.
Married couples have an additional reason why at least the highest-earning spouse should delay Social Security until he or she reaches age 70: that benefit will last over two lifetimes, no matter which spouse lives longest. When one spouse dies, the surviving spouse keeps the largest Social Security benefit, no matter which spouse earned that benefit through their working career.
Delaying Social Security benefits pays off for most recipients. One exception would be an unmarried retiree who is fairly certain that his or her lifespan will be less than 10 years. Otherwise, anyone considering when to begin a Social Security benefit should consult with their financial advisor and consider all options before making a decision.
Richard Schroeder, CFP®
Chief Investment Officer
