retirement

Social Security: Take early bird special?

Don TaylorQuestionDear Dr. Don,
You said you would wait until you were 70 to collect Social Security because you were concerned about your retirement income in your 80s and 90s. You're joking, right? What makes you so sure you're going to see 80 or 90? I mean, really, do you have a crystal ball or is the government asking you to give out that sort of advice?

I say retire and file for Social Security as soon as you can, if you can afford it, cause you might be dead tomorrow.
-- Joe Jumble

AnswerDear Joe,
I'm no shill for the government. You're right, either of us might be dead tomorrow, but if you're 62 and married to a spouse who's also 62, there's a roughly 41 percent chance that one of you makes it to age 90. It's those later years that make you wish you were the ant instead of the grasshopper and had waited to start receiving Social Security retirement benefits. The combination of the higher monthly benefit and the larger base qualifying for cost of living adjustments makes it an attractive option to delay if your finances allow it.

Taking retirement benefits at age 62 reduces your monthly retirement benefit from 20 percent to 30 percent, depending on your full retirement age. Spousal benefits taken at age 62 are reduced from 25 percent to 35 percent, depending on the spouse's full retirement age.

According to the Social Security electronic fact sheet on when to start receiving retirement benefits: "If you live to the average life expectancy for someone your age, you will receive about the same amount in lifetime benefits no matter whether you choose to start receiving benefits at age 62, full retirement age, age 70 or any age in between."

So on average, there's no advantage to taking benefits early or to waiting to start benefits. Since I'm more concerned about longevity risk than I am about the risk of dying early and not receiving Social Security payments, I'm planning to capture those delayed retirement credits. You feel differently. That's OK. It's why they call it personal finance.

The break-even point between taking benefits at age 70 versus taking benefits at your full retirement age is about age 81½ (ignoring inflation adjustments). Before that point, starting retirement benefits at full retirement age is preferred. Past that point, delaying retirement until age 70 is preferred. It's only at the break-even point that you receive the same dollar amount in benefits.

A joint life mortality table shows an 83 percent chance that either you or a spouse is still with us at age 81. Since survivor benefits reflect the additional credits for delayed retirement, waiting to start receiving Social Security retirement benefits can have a major impact on the survivor. However, spousal benefits don't include any bump for delayed retirement credits. They max out at 50 percent of a worker's full retirement age benefits, except for future cost of living adjustments, or COLAs.

Get more news, money-saving tips and expert advice by signing up for a free Bankrate newsletter.

Ask the adviser

To ask a question of Dr. Don, go to the "Ask the Experts" page and select one of these topics: "Financing a home," "Saving & Investing" or "Money." Read more Dr. Don columns for additional personal finance advice.
 

Bankrate's content, including the guidance of its advice-and-expert columns and this website, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this website is governed by Bankrate's Terms of Use.

News alert Create a news alert for "retirement"

advertisement

Show Bankrate's community sharing policy
          Connect with us
MORTGAGE HOME EQUITY AUTO CDs CREDIT CARDS
Product Rate Change Last week
30 year fixed 4.22%  0.06 4.16%
15 year fixed 3.32%  0.08 3.24%
5/1 ARM 3.52%  0.17 3.35%
 
View Rates in your area Next
Product Rate Change Last week
30K FICO-based HELOC 4.29% --0.00 4.29%
50K FICO-based HELOC 4.04% --0.00 4.04%
100K FICO-based HELOC 3.89% --0.00 3.89%
 
View Rates in your area Next
Product Rate Change Last week
60 month used car loan 2.79% --0.00 2.79%
48 month used car loan 2.99%  0.01 2.98%
60 month new car loan 3.24% --0.00 3.24%
 
View Rates in your area Next
Product Rate Change Last week
1 Year CD 0.95% --0.00 0.95%
2 Year CD 1.16%  0.01 1.15%
5 Year CD 1.71%  0.04 1.75%
 
View Rates in your area Next
Product Rate Change Last week
Balance Transfer Cards 15.75%  0.02 15.77%
Cash Back Cards 16.45%  0.03 16.48%
Low Interest Cards 10.96% --0.00 10.96%
 
Next
advertisement
CD & INVESTING NEWSLETTER

Learn the latest trends that will help grow your portfolio, plus tips on investing strategies. Delivered weekly.

Blog

Jennie Phipps

‘Bowzer’ rocks Social Security

Former Sha-Na-Na frontman Jon "Bowzer" Bauman is defending Medicare and Social Security.  ... Read more

advertisement
Partner Center
advertisement

Connect with us