Delaying the start of Social Security

Delaying the start of Social Security – potentially a fantastic deal
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For everyone who has paid into the Social Security system, there’s an official “full retirement date” – meaning the date corresponding to the age at which one qualifies for full, unreduced Social Security benefits.  It used to be 65 years of age for everyone, but when Social Security was modified back in the 80s, the full retirement age was raised for everyone, slowly creeping towards 67 for folks born after 1960.  Folks born between 1943 and 1956 – the ones who will be reaching “full retirement age” in the next 8 years, the age is 66.

What that “full retirement age” means is the age at which you may start taking your full Social Security benefits.  Folks  may start sooner than that – as soon as 62 – though doing so means a permanently reduced payout, and a potentially very high tax if one starts working again.  If possible, it’s best not to start early.

However, there’s a huge benefit to waiting a few years if you can.  For someone whose full retirement age is 66, every year the start of Social Security is delayed translates into an 8% increase in monthly benefits – for the rest of his or her life.  To put that into firm numbers, suppose you were just about to turn 66 and your full benefit was going to be $1000/month.  If you wait a full year to start collecting your benefits, you are forgoing $12,000 – a full year’s worth of those $1000/month payments.  In exchange, though, when you do start, your starting amount will be $1080/month.

The simple math on that says that you’re giving up $12,000 for $80/month and therefore, it’ll take 150 months – or 12.5 years – before you would have come out ahead by waiting.  But there’s more to it.  Of course, the odds that you may live past 78.5 are actually pretty good if you’re 66.  But the real value here is that this $80/month extra comes to you for as long as you live, it’s backed by the government, and – here’s the best part – it gets adjusted for inflation every year, so if inflation heats up, your increased payouts should keep up.
How good a deal is this?  If you were 67 (you delayed for a year) and went to the private annuity market, $12,000 buys you an immediate fixed annuity which pays out a fixed monthly payment for the rest of your life, a man may get $68/month for life – with no inflation adjustments and subject to the credit of the insurance company.  For a woman, it’s even worse since women have a longer expected lifespan – a similar quote today for a woman finds a payout of $62/month for life, again, with no inflation adjustments.  Comparatively, the Social Security delay – at a cost of $12,000 in forgone payments – is a home run.(Note: quotes for annuities courtesy of

If you’re nearing the age at which you’ll qualify to start taking Social Security benefits, it’s worth doing the math and exploring strategies for delaying benefits.  For a single person, it’s not as difficult to calculate (basically it’s what you see above), but for a married couple, especially if both have worked and earned credits, there are a lot of variables and we strongly recommend working through the scenarios with a professional.

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