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Have you heard of the Stanford marshmallow experiment? Researchers gave children one marshmallow. They promised a second marshmallow if the kids waited 15 minutes before eating the first one.
It’s a fun lesson in delayed gratification. As adults, we may chuckle watching the kids who don’t wait to eat the first marshmallow. But many of us don’t act all that differently with Social Security.
Determining when to start taking your Social Security payments is an important decision. The longer you wait, the more you’ll get paid each month.
You can do the paperwork to start your benefit any time after your 62nd birthday. You’ll max out your benefit amount if you wait until you’re 70 years old.
Perhaps not surprisingly, 62 is the most popular age that American start claiming their Social Security benefits. Reports vary, but about one-third of Americans started cashing Social Security checks at 62 as of the end of the 2010s. That number has trended down over time, although it tends to increase during economic turbulence.
Fewer than 10% of Americans wait until 70 years old to get their maximum Social Security money.
That’s despite the fact that the population is living longer. According to the Social Security Administration, the average 65-year-old man will live 84.1 years; the average 65-year-old woman will live 86.7 years. So the average 65-year-old woman can expect to live nearly 25 years after first becoming eligible to take Social Security.
People are living into their 90s more often. For them, delaying Social Security and waiting for larger checks could help prevent financial struggles late in life.
Extra money from delaying Social Security provides can temper financial risks from inflation, market uncertainty and expensive health care.
“The odds overwhelmingly show that a lot of us are going to live a lot longer than we thought,” money expert Clark Howard says. “So the best time to take Social Security is to wait as long as you possibly can.”
I’ll share the full list of reasons to take Social Security early a little further down in this article. But there are two logical incentives to take your benefit before your Full Retirement Age (FRA). And they often overlap.
You may need the money to pay your monthly bills. Or maybe you’re no longer working.
Clark celebrated his 67th birthday in June 2022. He’s been an excellent saver his entire life and doesn’t need Social Security money to pay for his daily needs. He’s also still working.
If you wait until you’re 70 years old to take Social Security, you’ll get your maximum benefit. Perhaps the main reason Clark plans to wait until 70 to collect is to get extra insurance against living a long time.
“I believe that we’re in a different health era. I work out virtually every day of my life. And I optimistically expect longer life than my dad or my grandads,” Clark says. “My mom lived until 92. That’s a factor. “I’m still working in my 60s. There’s a disadvantage to me taking Social Security now working because of the way Social Security punishes you to a certain point if you are still working. So especially for me, it’s smart to wait the full run until I turn 70 to start receiving Social Security.”
Thinking about our own death isn’t a fun topic. But deciding when to take Social Security usually requires estimating how long you’ll live — a crucial but unknown variable.
On a happier note, thanks to modern medicine, many of us will live into our 90s.
Let’s take a look at the difference your longevity, or lack thereof, can make. Using Fidelity’s calculator, I’ve run the numbers for a 60-year-old married man making $70,000 per year:
Age | Expected Longevity | Monthly Benefit | Lifetime Benefit |
---|---|---|---|
62 | Living into your 70s | $1,841 | $287,196 |
67 | Living into your 70s | $2,630 | $252,480 |
70 | Living into your 70s | $3,261 | $195,660 |
As you can see, a man who dies in his 70s could get $91,536 more from his Social Security benefit by claiming it at 62. That’s despite his monthly checks being $1,420 less — or $17,040 per year — if he starts his benefit at 62 versus 70.
Now let’s assume the same man will live into his 90s instead of his 70s:
Age | Expected Longevity | Monthly Benefit | Lifetime Benefit |
---|---|---|---|
62 | Living into your 90s | $1,841 | $729,036 |
67 | Living into your 90s | $2,630 | $883,680 |
70 | Living into your 90s | $3,261 | $978,300 |
By waiting until age 70 to start taking Social Security, this man can earn a whopping $249,264 more in his lifetime. Those larger monthly checks ($3,261) will come in handy as his retirement savings dwindle and his medical bills grow.
The longer you live, the more beneficial it would’ve been to hold out for your maximum benefit.
Your family history and health can give you some clues about how long you may live. But it’s ultimately an educated guess.
One thing’s for sure: The longer you live, the more it will strain your retirement savings. In that way, maxing out your Social Security can be a huge help.
You may not realize how long people live today, statistically speaking. The potential for longevity carries extra implications for married couples deciding when to take Social Security.
About one in three 65-year-olds today will live until at least 90. The average married couple that’s 65 years old has at least a 50% chance that one person will live into their 90s.
Men still outearn women in the workforce on average in 2022. But the gap was larger when current retirees entered the workplace.
Because Social Security benefits are based on your 35 highest-earning years, men in their 60s often get larger Social Security checks than women. On average, women also live longer than men.
The Social Security Administration accounts for this in two ways.
First, the spousal benefit gives the lesser-earning spouse up to 50% of the higher earner’s check, regardless of work history. The higher earner must be collecting their benefit before that becomes a possibility. This protects stay-at-home parents or those with large gaps in their employment history.
Second, if the higher earner dies first, the lesser earner can assume their benefit. It sometimes makes sense for the higher earner to delay their claim as long as possible. That way, if anything happens, the lesser-earning spouse can have some additional financial protection for the rest of their lives.
It’s easier for most people to fear dying early than living much longer than average.
“And yet here I am saying, ‘Well, if you wait, you’re going to make so much more money from Social Security over the years,'” Clark says. “But if you’re worried that you’re not going to have those years, that would be a psychological reason to go ahead and file for Social Security.”
You may want to take Social Security early if you:
Have you decided when to take Social Security?
Although few people do it, delaying until 70 is the best choice for many people.
You may want to wait if you:
Your Full Retirement Age, or FRA, is the point at which you’re eligible for 100% of your Social Security benefit. If you were born in 1960 or later, your FRA is now 67 years old. It’s earlier than 67 if you were born prior to 1960.
If you take Social Security at 62, the SSA reduces your full benefit by 30%. If you wait past your FSA, your benefit will increase 0.67% per month, or 8% a year, until you start to claim it. There’s no incentive to wait past 70 to claim.
Determining when to take Social Security can get complicated. But the bottom line is that if you live long enough, waiting to take your benefit will pay off at some point.
In other words, how long do you have to live if you take your benefit after 62 in order to make it pay off?
One financial expert told CNBC that the typical break-even point for someone who waits until 70 years old is about 82½. There are calculators that help you determine your break-even point depending on the ages you’re considering to start your benefit.
But if you agree with Clark and view Social Security more like an insurance policy than a math equation, your break-even point is less significant.
It depends on what you mean. At the current rates, the Social Security Administration says it will need to reduce the payouts to 75% of its current levels in 2035.
However, Congress could restructure Social Security before then. One option would be to raise more money by increasing taxes.
It’s impossible to know what the government will do. Expect something to change within the next 12 years. Still, it seems unlikely that the federal government will abolish Social Security any time soon.
Your Social Security benefit is based on the 35 highest-earning years of your working life. If you work more than 35 years, your lowest-earning years aren’t included in the calculation. If you work less than 35 years, you’ll get a few zeros in your calculation.
In 2022, your benefit gets calculated like this:
Add all those amounts together and round down to the nearest 10 cents. That’s your initial payment.
Surprisingly, you’re allowed to change your mind about taking Social Security once. You can pay back what you’ve received, including Medicare payments and taxes deducted. Then you can restart your benefits at a later date with a higher payout.
But you have to change your mind within 12 months of initially receiving Social Security.
Yes. The government issues COLAs (Cost of Living Adjustments). The 2022 COLA amounted to 5.9%, the highest amount in nearly 40 years.
COLA increases don’t always keep up with true inflation. But at least there’s a decent level of protection.
Your “combined income” determines whether you’ll owe taxes on your Social Security benefit. To get your combined income, add your adjusted gross income, your non-taxable interest payments and 50% of your Social Security benefit check.
You can be taxed up to a maximum of 85% depending on your combined income. Especially if you’re still working when you take Social Security, it’s a decent idea to talk to a tax professional or fiduciary financial advisor.
You must be at least 62 years old and you must hold at least 40 Social Security credits to be eligible for your benefit. You need to work (and pay into the system) for at least 10 years in order to earn those credits, as you can earn a maximum of four credits per year.
To track your credits — and your yearly income as far as Social Security is concerned — create a mySocialSecurity account.
Clark’s point of view is clear. If you can wait to take Social Security until you’re 70, he thinks it’s a good idea. If not, he says to wait as long as you can.
That logic makes sense. But each person’s financial circumstances and goals are different. Focus on whether you need the money immediately to pay high-interest debts or to put food on the table. Take into account whether your health and family history point to a higher or lower than average life expectancy.
Need more help? You can always consult with a fiduciary financial advisor. Clark recommends the Garrett Planning Network, which takes customers on an hourly basis.
When do you plan to start collecting Social Security? Share your opinion in our Clark.com Community!
This post was last modified on September 20, 2022 8:16 am
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