When contemplating one’s Social Security claiming decision, I’ve met with many clients who have strong views about taking their benefits early.  However, many are also intrigued by what the possibilities may be if they defer their benefit until they are age 70.  While the math will generally favor the latter strategy, life has a way of altering our view of “the math!”

Take a look at Bill and Betty.  Bill is 62 and has worked as an executive his entire career. Betty worked off and on throughout the years but mostly in part-time endeavors.  Full Retirement Age (according to SSI) is age 67.  They can begin taking benefits now since Bill is 62.  They can also wait until both are age 70.  Their benefits at their FRA (age 67) are $3,000/month for Bill and $1,800/month for Betty.  SSI maximization software will tell them the following:

If both take their benefit at age 62 assuming longevity at 88 for Bill and 91 for Betty, the total lifetime benefit is $1,607,000

If they both claim at age 70 with the same assumptions, their lifetime benefit is $2,145,000 a difference of $538,000.

So, why in the sweet name of the Social Security Administration would they not wait until age 70?  Here’s a few reasons:

  1. Health – if either spouse has had a health issue that might impact their longevity it could make sense to start their benefits earlier
  2. Sustainability of the “system” – if they doubt the ability to collect their benefits later in life they might modify their plans.
  3. Career change– a layoff, forced retirement or change in status at work could mean one or both spouses need their benefits earlier.
  4. A Bird in the Hand– this one is more a personal preference, but some just like to collect it.  I’ve paid the man, now I want my money back!

Let’s consider the counter argument – why wait until age 70?

  1. The math is almost always better – see the chart below:

We can see that one essentially breaks even and then is money ahead by age 81 if they wait until age 70.

  1. Taxes – the threshold limits for SSI to be taxed are relatively low and not adjusted for inflation.  If one or both spouses are still working, it’s likely your benefits will be taxed in some form.  “The only way you can minimize this tax is to reduce your other income, which may require some belt-tightening as you strive to live on an annual income that puts you under one of the thresholds.” – Savvy Social Security
  2. Longevity – my grandma lived until she was 99.  Many of you we speak with see extending living ranges in your family as well.  We never know of course, but if investments and other income can support one’s lifestyle they might want to wait.

This decision is very personal.  I don’t feel that gets enough attention when one only focuses on “the math.”  Everyone’s lifestyle, health situation, marital status and opinions about SSI need to go into this crucial decision.

As always, we are here to help parse and advise on this important issue.