My parents will be turning 62 next year, and I don’t think they’ve been this excited about a milestone since their 18th birthdays. They cannot wait to start collecting early Social Security benefits. And I am trying my hardest to stop them.
Some of the best loopholes for maximizing your Social Security benefits — the old “file-and-suspend” gag and the classic “restricted application” trick — have recently been closed. To be fair, these strategies almost exclusively benefited the wealthier and better-advised segments of the population, but I will miss the games all the same.
The only way to increase your monthly benefit now (besides, you know, making more money throughout your lifetime) is to not take it. Not right away, anyhow. You see, the longer you wait to claim your benefits, the bigger they get (up until age 70). This varies by age, but for someone just turning 62 and claiming benefits her monthly payout will be 25% less than what she would receive if she waited until her full retirement age of 66. If she waits a further four years until age 70, her benefit increases another 32%.
The delayed retirement credit wasn’t always so generous, which may be why my parents and so many others are programmed to want to take it as early as possible. When I was born in 1981 it was only 1% per year, a far cry from the 8% it has gradually increased to today. Search all you want, you aren’t going to find a risk-free return like that anywhere in this market.
Battle of the Sexes
Social Security payouts are not gender-specific, but actuarial tables are. At age 62, the life expectancy of a woman is 2.78 years more than that of a man. Therefore, the benefits of delaying Social Security payments are typically greater for women than they are for men, all else equal.
The cumulative payout in real dollars of waiting until the full retirement age of 66 will surpass that of taking it early by age 77. According to the the Social Security Administration’s actuarial tables, men aged 62 have a 69.8% chance of making it to their 77th birthday, and women have even better odds at 78.5%. If you wait even further to 70, your cumulative benefits will surpass those of full retirement at age 82. Even then, both men and women are more likely to reach that milestone than not, at 52.4% and 64.0% respectively. Beyond age 82, the differences can amount to hundreds of thousands of dollars.
The real risk is that of longevity — outliving your savings and having to live solely on Social Security. In this event, having the larger payout that comes from delaying Social Security benefits in vital. One out of five 62 year-old men and nearly one out of three woman will live to see their 90th birthday.
“I Just Want to Get as Much as I Can Before it Runs Out!”
The only seemingly logical counter-argument to holding off as long as possible for Social Security — besides being too poor in health or just too poor — is the prospect of the program running out of money. It is true that if nothing changes Social Security will no longer be able to pay out 100% of benefits by 2034. I trust Congress will wait far too long to address this issue, but find it hard to believe they will ultimately fail to act. Old people like to vote, after all. If anything, I think an increase in the dole is more likely — perhaps in the form of a basic universal income, but that’s another story.
Regardless, 2034 is still 18 years away so it should not alter the decision of those retiring now. Even then the payouts would continue, albeit at a reduced 79% rate. Which would make having a larger payout all the more important.
Try to keep all this in mind when you blow out those 62 candles.
