Lots of people think that delaying when you take Social Security past age 62 is foolish. They adhere to the theory that most people should take Social Security as soon as they can since they don't know how long they'll live.
That point of view probably made sense 20 years ago. But "this is not your parent's Social Security decision," points out Joe Elsasser, a Certified Financial Planner and principal of Social Security Timing, which sells Social Security analytical software.
Elsasser uses this example of someone who retired at 62 in 1980, earning $20,000 a year. The average U.S. wage then was $12,513, and Social Security taxes were imposed on wages up to $25,900. If this relatively well-compensated person had taken his Social Security at 62, he would have received $395 a month. Full retirement age was 65, and delayed retirement credits were smaller. People who took Social Security at 62 received 80 percent of what they would have gotten if they had waited until age 65 to claim. So waiting would only have gotten this person about 20 percent more money -- hardly worth the wait. By delaying until age 70, this person would have received 43 percent more than they would have at age 62.
Today the math is different. People who take benefits at age 62 get 75 percent of what they would get if they waited until age 66. If they delay until age 70, they get 76 percent more than they would have if they had started taking benefits at age 62, according to Elsasser's calculations using Social Security's AnyPIA software.
This boils down to a big bump in benefits for a couple who earns average wages and who utilizes such claiming strategies as "file and suspend" or "filing a restricted claim for spousal benefits ... until age 70," says Elsasser. Joint benefits can increase by as much as $20,000 to $30,000 a year.
"When to take Social Security is a big decision, and it affects every aspect of a retirement plan," Elsasser says.
He argues that in many cases, delaying claiming -- even if doing so means spending down savings -- will pay off big time. He estimates that waiting to take Social Security is a 40 percent cheaper strategy than buying a commercial annuity that would pay the same benefit. Plus, "Social Security is backed by a government promise, is longevity-protected and inflation-adjusted."
To figure out these retirement planning strategies, you'll need to use sophisticated software not available from Social Security. "If you file in the standard way, you'll get the highest benefit that you are eligible for on that day without concern for how it will impact you and your dependents down the road," Elsasser says.
Elsasser's company only sells its software to retirement planners, but you can buy access to competing software packages, including SocialSecuritySolutions.com, MaximizeMySocialSecurity.com and SocialSecurityChoices.com.
It's money well spent.