5 Reasons to Delay Social Security Benefits
By Jeffrey Levine, Director of Retirement Education
Follow Me on Twitter: @IRAGuru4EdSlott
As many know, you may not need to start taking Social Security at age 62; you can start any time after that until age 70. After 70, there’s no point in waiting longer because your Social Security benefits won’t increase moving forward. If you don’t have an immediate need for the money and you’re healthy enough to anticpate a long retirement, waiting will increase the size of the Social Security checks you’ll eventually receive. Long-term, you may come out ahead.
Here are 5 reasons to delay your Social Security benefits:
1) Your Benefits Will Increase
If you’re one of the many workers who will be able to claim your Social Security benefit at 62, you may be tempted to cash in as quickly as possible. Doing so, however, will result in receiving a benefit substantially less than what you would be entitled to if you claimed at your full retirement age (FRA), which is 66 for most people retiring today. And if you wait beyond your full retirement age – to as late as 70 – your monthly benefit will continue to increase thanks to delayed credits. When you factor in everything, including potential cost-of-living adjustments, delaying receiving Social Security to 70 – as opposed to claiming benefits at 62 – can result in monthly payments roughly 80% – 90% higher.
2) Your Benefits May be Reduced or Eliminated by the Earnings Limit
Still working and thinking about claiming Social Security benefits? If you haven’t reached your full retirement age yet, that almost certainly won’t make sense if you’re earning more than just a modest amount. That’s due to an earnings limit that can reduce or completely eliminate your Social Security benefits if you haven’t yet reached your full retirement age. If you won’t reach your full retirement age in 2016 and claim your Social Security benefit, then your benefit will be reduced by one dollar for every two dollars you are over $15,720 of earnings (W-2 wages and/or self-employment income).
3) It’s a Cheap Annuity
At the end of the day, Social Security is nothing more than an annuity. It’s also probably the cheapest annuity you can “buy.” Wait… What?… You don’t buy Social Security right? Well, in a way you probably do. If you consider the increase in benefits you get by waiting an additional year to claim Social Security your annuity, and you consider the amount of your own money you have to use to delay claiming Social Security for that year to be your premium, and you compare that to what’s available commercially, it’s almost always going to be more cost effective. And that’s especially true in low interest rate environments like the one we’re possibly in.
4) Your Spouse’s Survivor Benefit Could be Increased
If you’ve been the higher earner throughout your marriage, then you’re likely to have the higher Social Security benefit. If you are married and are the first to die, your higher Social Security benefit will “live on” as your spouse’s benefit and your spouse’s lower benefit will go away. Thus, even if you were to die relatively soon after claiming delayed benefits – a major fear for many – it could still make financial sense if your spouse enjoys a long life.
5) Many People Regret Claiming Social Security Early
A bird in the hand is worth two in the bush? That’s how many people feel when it comes to Social Security. “Why put off getting money today when I don’t even know if I’ll be around in the future to get the higher benefit?” It’s an understandable position, and one that drives many people to claim Social Security early, but it’s also a decision that comes back to haunt many retirees. Studies have shown that a great many of early claimers later regret that decision. Unfortunately, by that point, they can’t do anything to change it.