Although I’m still decades away from Social Security, I see a constant stream of articles about the “best” time to start taking benefits. Often, you are told to delay claiming until age 70, as you will receive a more valuable, inflation-adjusted, government-guaranteed payout for the rest of your life. But if you have a spouse, it may be better for one of them to claim as early as possible, at age 62. There are many calculators out there – here is one free tool for Optimal Social Security Claiming Strategy.
Apart from the theoretically optimal, when do people actually start taking Social Security? Here is a chart from this Morningstar article (which otherwise includes a lot of speculation):
The three most popular times are:
- Age 62: As early as possible. Many people feel that they have little choice but to ask for the money the moment it is available. Some have health issues which change the odds against waiting. Some just want the bird in the hand now. Finally, this may be the mathematically optimal strategy for one member of a couple. Together, this makes ASAP the most popular choice by far.
- Age 66: “Full” retirement. Although there is nothing technically magical about the age 66, it is called “full retirement age” for people retiring in 2019. This is when you’ll get “100%” of your “full” benefits, and anything less is called a “benefit reduction” and anything more is called an “benefit increase”. I wonder if behavior would change if they changed their wording? They could, for example, also just call 62 the base age and call everything after that a benefit increase.
- Age 70: As late as possible. In order to decline “free” money from the government for 8 years, you must believe in your odds of having an average/above-average life expectancy and have enough financial assets to pay for your expenses during the wait. Less than 10% of people go this route. Your reward is a monthly benefit that is 33% higher than claiming at age 66, and 76% more than claiming at age 62. This increased income will also increase with inflation each year, and inflation-adjusted annuities are only sold by a few insurance companies and are quite expensive.
This matches my anecdotal experience from family and friends. Most people don’t consult a complicated calculator. They either take it as soon as they can for whatever reason, or they “follow the rules” and take it at the “full” retirement age. I’ll probably cough up the money for a calculator when the time comes.
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The other thing about “full” retirement age vs early retirement is that at full retirement age, you can claim your benefits, and continue to work without having the benefits decreased if you earn “too much”. My husband may not retire when he reached full retirement age, but he’ll take his benefits. Taking them now and continuing to work would not be worthwhile.
Thanks for your comment, that is a good tip to consider.
Hi Jonathan – I have been a long time follower of your blog, starting when it made sense to arbitrage Credit Card Sign Up Bonuses. Curious why you would pay for a calculator, when it seems to be a time value of money problem somewhat complicated by including mortality tables.
Mostly, I’d probably just want to make sure that I am up to date on whatever wrinkles are available, like the “file and suspend” option before it was closed. The peace of mind is worth the relatively low $40 cost (MaxMySocialSecurity example) to me.
I spent time with the available free calculators and my own spreadsheets trying to figure out the best time to take Social Security (SS). Playing with the calculator you quickly learn that forecasting your demise was the key – something most of us don’t know how to do. Finally, my approach was to ask myself what I wanted to have SS do for us. I am seven years older than my wife, my wife was the lower wage earner, and we have other resources
The answer as to what we wanted SS to do for us was to provide protection in two areas. The first was to cover the event that I die early. The second was to cover both of us living long lives.
Without a calculator, the obvious decision was for both of us to wait until 70 to take SS.
Each person should take time to evaluate when to take SS. However, start by asking yourself (and, if you have one, your spouse), what you want SS to do for you, when taking into consideration your personal life and resources. You may get the answer without a calculator.
Remember, the calculators don’t give you the right answer – they give you an answer based on your time of death guesses. The right answer will only be known after you die, so don’t chase your own tail too hard.
Good points!
Well said abc. My wife (year older) took her’s at 66 while I’m going to wait until 70. I do have this occasional nightmare where everybody is at my funeral and one them says, “to bad he got hit my that bus on his 70th birthday”.
Most calculators are engineered with one goal in mind – how to get the most overall dollars. As is noted above, your motivation may be different.
Retirement can be divided into three phases: the gogo years, the slowgo year and the nogo years. One advantage of claiming at 62 is that it may give you time to travel and have fun before your health makes all those things you have been dreaming of difficult or impossible to do. If you get smaller checks when you are 90 years old and confined to a bed it may not have any negative affect on your life.