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What is the Best Age to Apply for Social Security Benefits?

D Cator 2014
Donna L. Cator, CFP®, CDFA®
Vice President, Wealth Advisor
[email protected]
(585) 394-4260 x50623

Don’t let irrational thinking drive your decision making in what could be one of the most important financial decisions you make.

What’s better, starting at age 62 and receiving a reduced monthly benefit for life, or waiting until age 66 or 70 and receiving a higher monthly amount for life?

It is very important to not base your decision on irrational thinking. If you are justifying an early claim by saying “I may die tomorrow” or “I want to get whatever benefits I can before the Social Security System goes broke”, you may be doing a huge disservice to yourself and your family.

Anyone who begins social security benefits at age 62 receives a permanent monthly reduction of 25% from the full benefit. For the baby boomers born between 1943 and 1954, age 66 is full retirement age at which one would get 100% of the full benefit if payments are started then. From age 66 to age 70, by delaying benefits, one would get an 8% increase for each year of delay, which means someone starting payments at age 70 would get 132% of the full benefit. You would be hard pressed to find another investment strategy that would deliver a guaranteed 8% increase each year!

Unless you need the monthly income, a very good argument can be made to delay the start of your Social Security Benefits. With the advancements made in health care and healthy lifestyles, there is a good chance that you will live beyond your average life expectancy. If you live beyond your “breakeven” age, which is somewhere between age 78 and 81, you will receive more over your lifetime if you delay the onset of benefits to at least age 66. Waiting until age 70 maximizes your benefit. Again, each year you delay past the age of 66 your monthly benefit goes up by 8%.

Let’s put this in real dollars. Let’s assume the full monthly benefit for a 62-year-old baby boomer in 2009 is estimated to be $2,200. If he or she starts collecting at age 62 with a 25% reduction, age 66 and age 70, respectively, the monthly benefit amounts would be $1,650, $2,200 and $2,904 (these are all WITHOUT cost of living adjustments (COLA)). If we add on an annual COLA of 2.5% the monthly benefit amounts at age 70 would be $2,010, $2,680, and $3,538, respectively. Once COLAs are considered, your age-70 monthly benefit is worth even more by delaying the start of benefits vs. taking them earlier.

There is no cookie cutter approach to this question. The best way to make the decision that is best for you is to consult with a trusted advisor who will evaluate your health status, current earned income, life expectancy, marital status, relative ages of spouses, which spouse is the higher earner, and other important, but often overlooked, factors.