It’s a big decision, one we’ll all have to make: Should I take Social Security as soon as I’m eligible, at age 62, or wait till I’m 66 … or even 70, when I would receive the maximum benefit?
The answer is not as simple as you might think. And the consequences are enormous.
- Most people take Social Security as soon as they are eligible, at 62
- Most financial advisers suggest you wait until 66 or 70
- Every case is different; decision should be part of your financial plan
“As important as Social Security is to many people’s post-retirement finances, it’s given little thought in retirement financial planning, says Jeff Bucher, president of Citizens Advisory Group in Perrysburg, Ohio.
“Most of the time, it’s put on the back burner,” he says. “It is a huge benefit to people’s lifestyles. It is important that we look at all the options.”
SOCIAL SECURITY: 5 things you need to know
“It probably is the least-evaluated decision for retirees but has more complexities than people are aware of,” says Jack Tatar, author of several books on retirement, including Safe 4 Retirement.
“Most people take it at 62,” he says. “They end up losing in the long run. If they delay it till 70, they will get 30% more. Unfortunately,” he says, “most Americans can’t do that.”
Improper timing can cost you $100,000 to $150,000 over a lifetime, says John Gajkowski, of Money Managers Financial Group in Chicago.
When should you take it?
If you delay taking Social Security, it increases your monthly benefit about 8% a year until you’re eligible for the maximum at 70. Most financial planners pretty much recommend that you do that if you can, or delay at least until age 66. But most people can’t delay.
Some quick facts:
- Many people — 41.4 % — take the benefits as soon as they’re eligible at age 62, according to Social Security Administration.
- Half of Americans 65 and older rely on Social Security for at least 50% of their family income; 23% rely on Social Security for 90% or more of their family income, according to the AARP Public Policy Institute.
- Minorities are less likely to receive benefits, and when they do, are more likely to be more dependent on them, says Gary Koenig, director of economic security in AARP’s Public Policy Institute.
Koenig says many people don’t realize how modest Social Security benefits are. “You look at the average benefit that a retired worker is getting, and it’s $15,000 a year,” he says. “If you wait till you’re 67 and are in the highest income group, you won’t receive more than $30,000 a year.”
Morningstar’s Blanchett wrote a report, “When to claim Social Security” in The Journal of Personal Finance. He said his analysis suggests that the advantages to delaying the Social Security benefits can be significant. Still, he cautions, every case is different.
“We find that females, married couples, retirees who expect to invest in relatively conservative portfolios during retirement, and retirees who have longer life expectancies are likely to benefit most from delaying Social Security benefits.
“On the other hand, retirees who have shorter life expectancies or invest more aggressively and believe they can achieve a relatively high return on their retirement portfolios would likely be better off taking Social Security earlier,” he says.