As clients get older and retirement approaches, we get a common question. When should I start taking Social Security? My follow-up question is, “Well how long are you going to live?” YOU DON’T KNOW! Either do I, unfortunately.
I put together a chart to illustrate generally how Social Security works and what it looks like when you start taking benefits at different ages. We can’t determine how long you are going to live, but based on health and family history, we may be able to help tilt the tables in your favor.
Social Security payouts are based on a complicated formula that takes into account a host of information including life expectancy tables. (Click here to see the life expectancy tables used in 2010.) Take a look at the Chart I created. It shows a hypothetical comparison of what it could look like starting Social Security benefits at different ages. Please refer to the hi-lited numbers. The red cell indicates the total Social Security payments through age 80 if this hypothetical person started receiving benefits at age 62. Each yellow cell indicates when the total benefits would surpass the red cell, if starting benefits were delayed to later years. There is no coincidence that the benefit seems to catch up at the same age no matter what year you begin receiving benefits. The longer you live the more it makes sense to delay the start of Social Security benefits. Just look at the cumulative benefits at age 95 and compare the total benefit received starting at 62 versus 70. There is over a $200,000 difference!
So the real question is how long will you live? If only life was that easy. But wait! There are other factors. What do your expenses or lifestyle demand in terms of monthly income? Can your investments cover the gap without running the risk you will run out of money? Do you have legacy wishes for children, family members or a favorite charity? These are all factors that impact the decision on when to start taking Social Security. We haven’t even talked about other financial planning strategies we could use for married couples. Strategies that can greatly increase your social security combined lifetime benefits and allow you to save those hard-earned investment accounts for your beneficiaries!
We can help navigate what seems confusing and hopefully create a much clearer picture of what your retirement years should look like!
Chart Assumptions:
- Annual Cost of Living Adjustment of 2%
- Full Retirement Age of 66
- Full Retirement Benefit of $2,000
- At age 62 you receive 75% of Full Benefit, 63 is 80% of Full Benefit, 64 is 87% of Full Benefit, 65 is 93% of Full Benefit.
- Each year after age 66 benefit grows 8% (simple not compound) assuming you haven’t started to receive benefits.
Written by: Brad Kaplan
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