Social Security Claiming

Powering Your Retirement Radio

Everyone has questions, a common one is when to claim Social Security? Last week I had an individual in asking that very question. I think this person was like many people I talk to, they wanted a definitive answer, not a word problem from the SAT test. Sadly, there isn’t a single right answer.

If you want to blow your mind, you can claim Social Security in any one of the 96 months from your 62nd to 70th Birthday, if you are married your spouse has the same 96 months, so there are 192 decision points assuming one spouse has a higher earnings history there is the possibility of collecting a Spousal Benefit. Spousal Benefits stop at your full retirement age, which adds another 60 decision points. So that is 252 different options to consider? Are your eyes glazing over yet?

I find Social Security claiming to be an emotional decision, not a financial decision. There is no one size fits all answer to when to claim Social Security, because of the amount of unknowns in the calculation. When you start factoring in life expectancy to the 252 decisions point it is enough to drive you mad. I always ask what is the goal for the money from Social Security? Biggest pile of money possible over your lifetime, or reclaiming your life as soon as possible. Back to my clients, he started with I should take at 62, right? I started to explain how delaying could lead to more money over their lifetime. The conversation took an immediate 180-degree turn. “Okay, then I’ll wait until age 70,” was his reply. I asked how he planned to bridge the income gap not claiming Social Security would cause? Another 180-degree turn, “okay then I should take it at 62?” Round and round they went until we created a spreadsheet showing the cumulative dollars they would receive over the years. It was helpful, but it still doesn’t help due to the unknown of life expectancy.

Here is an example of what the decision looks like, I am using a real set of Social Security numbers, which at age 62 would pay $1,896, at age 67 would pay $2,693, and at age 70 would pay $3,340.

Let’s look at some numbers, at age 62, you would receive $22,752 a year which would add up to $113,760 before the 1st payment of the Full Retirement Age (67) stream and $182,016 if you waited until age 70. Over 30 years the total income (not adjusted for COLA) would be worth $682,560. At age 67, you are starting behind, but you’d have a larger payment of $2, 693 and $32,316 a year. At the end of 12 years (age 78), the stream of income from age 67 to age 79 would have caught up and be ahead of the age 62 stream by $1,008. Each month from here on out the gap would grow. At the end of the 30-year period base on starting at age 62. The 67 to 92 stream would be worth $807,900. That is $125,340 more, but you have to be alive to collect it.

Finally, if you were patient and waited until age 70 your starting payment would be $3,340 a month and $40,080 a year. The 70-year-old stream start behind the 62-year-old stream by $182,016. The 67-year-old stream has a lead of $96,948. The large payment catches up to the 62 -year-old stream in the 11th year and it catches the 67-year-old stream in the 13th year. The gap continues to grow from then on. The biggest pile of money if you live to 84 years old is going to be waiting until age 70. This stream of income at the end of the age 62 30-year timeframe would be worth $881,760, which is $199,200 and $73,860 more for age 62 and 67 respectively.

The conclusion is you have to make an educated guess on your health, longevity, and vitality. Knowing one’s a to have the desire and ability and not be able to do things and likewise having the money, but not the ability to enjoy are the two least desired outcomes.

What it boils down to is if you don’t think for whatever reason you will live into your 80s, claiming early can make sense. If everyone in your family lives until their 90s waiting will lead to more money. The follow-up question is are you willing to trade the extra time waiting, for the higher payout. If you can go without the income and still be retired, it is probably okay to wait. If you are spending down assets in the hope of getting more money from Social Security, you need to dig a little deep to make sure you are making the right choice for you and your family.

In my experience most people take Social Security, based around when their total income including Social Security reaches their desired level, not based on what leads to the biggest pile of money, but what lets people reclaim their life as early as possible. The CFP© in me thinks people should wait, the reality and the human being part likes to see people reclaim control of their life. Hopefully, after some planning, you can make a decision that is right for you.