Are 97% Of Social Security Recipients Doing It Wrong?

Figure out whether you should take benefits early. You probably shouldn’t.

A fatter Social Security check awaits those who delay collecting it until age 70. Only 3% of claimants start that late. Are the rest making a bad decision?

I can think of eight reasons for grabbing the money early. Three are smart. Five are dumb. If you are debating when to start, study your motives. Make sure you are in the smart group.

First get a handle on the value of your retirement benefit. Download the calculator from What’s Your Social Security Benefit Worth? Insert expected benefit amounts, ages, health statuses and genders.

The output may surprise you. Consider a mid-60s couple in which one person has earned close to the maximum benefit and the other has at least a so-so earnings record. They are sitting on an annuity worth more than $1 million. Also surprising: what a big difference your claiming strategy makes.

The calculator shows whether you’re better off starting late—usually you are—and how much better off. If you start late, you collect for a shorter time, but (usually) more than make up for that with a higher monthly payout. The difference in the payout streams, as measured by their discounted present values, can easily run to $200,000.

With Social Security, timing is a very big deal. And retirees seem to be bad at timing. Look at this plot of how many people wait until what is usually the optimum starting age of 70:


Recent years have seen some increase in the waiting game, as people soak in advice from Forbes and many other sermonizers on this subject. But the vast majority of retirees jump into benefits before turning 70. The average age at which benefits start is 64.4 years.

Now let’s consider the eight things that could drive you to an early payout.

#1. You’re hard up. A third of beneficiaries start at the earliest point, age 62. Most of these people, presumably, are not working, since there’s a benefits penalty for working that goes away only at 66.

A view of how often people are just scraping by on their Social Security payments is this breakdown, which Vanguard calculated from government data:

For three in five recipients, Social Security represents half or more of income.

My sympathies to the less financially fortunate. But still, this reason for starting early goes under Dumb. People in their 60s who have quit their main careers or have been laid off, and who don’t have other assets to live on, should take a job, any job, and let their Social Security benefits grow.

You might live to 90 or 95. At that point you won’t be able to work, and you’ll really need the incremental income from a delayed retirement check. Get some employment from 62 to 70, even if it’s part-time at Home Depot…

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