There are many benefits to delaying Social Security benefits but there are also some serious drawbacks. If you push back on the start date your eventual benefit will be larger. And since it is larger, your cost-of-living increases will be calculated from a larger base and hence the annual increases will be larger too. And if you and/or your spouse have a larger base benefit, the survivor will get a larger benefit too. All this is true. But does that mean you should delay taking benefits at all costs? It isn’t so simple. Here’s why:
In order to delay Social Security benefits, you might have to dip into your retirement savings earlier than you had expected. If that is the case you have to calculate carefully.
As you’ll see, if your nest egg is big enough, it really doesn’t matter when you tap into SSI. But if you have modest savings, your decision can make a huge difference. Let me explain.
Investment News Magazine shared the results of a recent study that investigated this particular phenomenon. They looked at different investors with different sized savings.
They found that if you start Social Security at 64 rather than at 62 and have a portfolio of $200,000, your money will last 4 years longer. That’s because when the person finally started receiving benefits at 64, the higher benefit reduced her need to tap into the portfolio.
But that same investor who had a portfolio of $250,000 only increased the longevity of her savings by 3 years by delaying from 62 to 64. That’s because Social Security made up a smaller percentage of the retirement income she was generating.
And people with a $1 million retirement account only increased the life of their money by less than one year with the delaying tactic.
In essence, the more you need Social Security the smarter it may be to delay taking it. Ironic. But is that all there is to the decision? Not by a long shot.
You have to consider your longevity, health and your overall financial situation. If your family has a history of longevity, this argues for delaying benefits to maximize the higher payout over your lifetime. If on the other hand your health is poor and or your family doesn’t have a great history of longevity, it argues for taking the money while the “getting’s good”.
What is your Social Security strategy?
JC Webber III says
October 21, 2014 at 7:26 AMI’m waiting. I’ve got $1M+, but who knows how much it will be worth 20 years from now. It’s all in the market (and bonds). It’s volatile. But, SS income on the other hand will be set. And at a higher rate the longer I wait. It’s a nice security blanket.
Neal Frankle, CFP ® says
October 22, 2014 at 11:31 PMJC – nice work. Over 20 years you should be in pretty good shape depending on your spending habits. But you’ve done great….