Retirement Planning/social security
QUESTION: I've mostly heard that you should wait as long as you can to take social security benefits, age 70, because you get more then. But if someone waits until then, seems they would be using up more of their savings before then, to live on. Whereas if they collected at 66, they would get less but wouldn't have to use as much of their savings to live on. Or does it all just balance out? Thanks
ANSWER: Hi Lee,
This issue would be different for each individual based on their circumstances such as what other income they have coming in, taxes, spouses status and so on. Generally speaking, if you wait to take SS to recoup the money you've already collected by waiting. By waiting to age 70, your break even point could be somewhere around 12-13 years. After that, you would be ahead. Here's an example, Let's say my age 66 benefit is $1000 per month or $12k a year. By waiting to age 70, the benefit should be somewhere around 132% of the age 66 benefit or $1320 per month or $15,840 per year. If I started at age 66 I would have collected $48k by the time I turn 70. Being that the age 70 benefit is $3840 higher it would take about 12.5 years until the amounts were equal. So if you lived past 82 1/2 it would have been a good move. If you don't live that long you would have gotten short changed so to speak. There is also the possibility that you could die before age 70 and receive nothing.
I would say in most situations one may be better off taking it at age 66. Please access your situation carefully before making a decision. I would recommend you consult and advisor to help you figure it out. Hope this helps. Best of luck!
---------- FOLLOW-UP ----------
QUESTION: Thanks Dave, I just can't wrap my head around one thing you said in the beginning..."Generally speaking, if you wait to take SS to recoup the money you've already collected by waiting." Can you please clarify that? Thanks
Actually I worded that wrong. What I meant was that if you wait until 70, you will need to figure out how long it will take you to recoup the 4 years of payments you skipped had you taken SS at age 66. We'll use my example again. Had you taken SS at 66 @ $12k per year you would have collected $48k by age 70. If you wait until 70, your payments will be $15,840 or $3840 more than the age 66 payment. Therefore, you take the $48k and divide it by the difference of the age 66 vs age 70 payment. $48k divided by $3840 is 12.5. So if you collected $12k per year at age 66 or $15,840 at age 70, you would have collected the same amount of money by age 82.5
Age 66= 16.5 years of collecting $12,000 annually = $198,000
Age 70= 12.5 years of collecting $15,849 annually = $198,000
So if you live past age 82.5 you would come out ahead in the end. If you die before 82.5, you would have collected less. Of course these are not actual figures but if you look at your SS payment projections you can apply the same math. I hope this clears it up for you. Thanks.