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Jean Chatzky

Jean Chatzky: Boost Social Security income

By Jean Chatzky · Bankrate.com
Friday, October 10, 2014
Posted: 9 am ET

Editor's note: Jean Chatzky, the financial editor for NBC's "TODAY" show, is an award-winning personal finance journalist, AARP's personal finance ambassador and a contributing editor for Fortune magazine. Her eighth and most recent book is "Money Rules: The Simple Path to Lifelong Security." Jean blogs at www.jeanchatzky.com and tweets @JeanChatzky. You can find her on LinkedIn and Facebook, too.

We're all concerned that the money we've saved for retirement won't be enough to float us through. So how would you feel if you knew that you could be leaving hundreds of thousands of dollars on the table?

That's potentially what the two-thirds of Americans who take Social Security at age 62 are doing. Tapping that cash on that timeline means giving up roughly $180,000 if you're single and $323,000 if you're married, says William Meyer, founder of Social Security Solutions.

Why? Because waiting, typically, until age 70 to cash in increases your benefit amount significantly.

"For every year past full retirement age you delay taking benefits, you're getting a guaranteed 8 percent increase. There's nowhere else you're going to get 8 percent guaranteed and backed by the U.S. government," says Meyer.

That makes the decision to tap benefits a complicated one. Here are a few things to consider.

1. Your life expectancy

Yes, it's impossible to peg, but it's important to consider. As Laurence Kotlikoff, a professor of economics at Boston University, says, "You don't think your house is going to burn down, but it wouldn't be reasonable to skip homeowners insurance."

Don't rush to take Social Security just because you might die and leave your money on the table. Still, you probably have a general idea of how long you expect to live, based on your health and family history. While we know that, on average, 65-year-old men live to be 82 and 65-year-old women live to be to 85, each individual is different. If your parents are still healthy as a horse, you should shoot long term. If no one in your family has made it past age 70 and you're a smoker, it might be safe to assume a shorter time horizon for yourself. There are longevity calculators that can give you a general idea; a good financial planner will get you even closer.

2. Your marital status

If you're single and you want to get the most money out of the system, you should delay taking benefits until age 70 if you think you'll live past age 80. Why? Because 80 is the age when you'll break even between taking the lower benefit amount for a longer number of years and the higher benefit amount for a shorter number of years.

"If you're solving for how to get the most money out of the system and you're single, all cumulative benefits equal each other at age 80," says Meyer. That means if you and I have the same benefits and you begin drawing at 62 and I start at 70, we'll have pulled the exact same amount out around age 80. But because I waited and allowed my benefit to increase by that 8 percent a year, I'll continue drawing a higher amount while you'll be stuck with that lower benefit for tapping early.

"If you waited, for every year after the age of 80 that you live, you start to accumulate more -- significantly more," says Meyer. "We can find hundreds of thousands of dollars."

3. Your income

If you're married and one spouse earns significantly more -- and, again, you have reason to believe that at least one of you will live past age 80 -- the higher earner should wait to take benefits while the lower earner taps early, if necessary. With this strategy, if the higher earner passes away first, the surviving spouse can take 100 percent of his benefits instead of her own.

4. Getting help

If the above flew right over your head -- and I admit, it's complicated -- or you feel you fall into a different category completely, I believe it's worth getting some help to figure out a strategy that works for you. I plan to do just that.

Bankrate offers free calculators to help you run your numbers and test scenarios. For more, see the Social Security income calculator to estimate your amount of Social Security benefits.

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30 Comments
Hollie A Ryder
February 09, 2015 at 11:48 am

When receiving my first pay check from a part time job while in HS I became aware of SS and learned of its ramifications. Even though I draw a small amount of SS monthly payments the program is a rip off for the vast majority of citizens. That was my initial thoughts on the program and they have not varied. I invested less per month into extremely conservative mutual funds than payments into SS would have been and possessed term life insurance should I die prior than achieving retirement age, this for the protection of my family. We have become millionaires and retired in our middle 50's, now in our 70's. We have no debts, travel when and anywhere we desire, live in a warm weather state with no tax on retirement income, and shake our heads in silent disbelief that most others our age and even younger have myriads of problems. The basis for this was having a plan and adhering to it. The knowledge basis came from a programmed summer school economics course developed by the University of Nebraska and taken in summer school to permit being in the high school marching and concert bands. I did not realize the value of the knowledge gained until retirement. When coupled with discipline and iron clad monthly adherence to monetary investing we achieved this on public school gym teachers incomes while putting both our daughter and son through their BA and MA degrees. The most important aspects of our good fortune have been agreement on goals, discipline, and relatively good health.

ss

bradmax
January 06, 2015 at 9:25 am

Ms. Chatzky neglects to consider the benefit of not having to work for 8 more years and having less time to relax and enjoy your life without having to worry about going to work every day. If you have enough income to maintain your standard of living you should retire as soon as you can. Continuing to work later in life does not make your life any longer (it could make it shorter depending on what your job is) it only makes your retirement shorter.

BGail
January 03, 2015 at 8:16 pm

If you have a good job and work from 62 to 70 you probably are making a lot more money than you can get from social security retirement at 62. So it's not like you are losing money while waiting to retire at 70 if you continue to work.

sheridan jordan
January 03, 2015 at 12:51 pm

Sounds like the above flew right over Barry's head.

Steve Vinzinski
December 17, 2014 at 12:00 am

Ms.Chatzky has written an excellent article.So much information condensed in one neat series of paragraphs.I would never believe two-thirds take their social security at 62.There are pros and cons if you die at eighty years of age you probably have not lost anything on the other hand if you live to ninety years old yes you have.One can retire at 62 and work prime time without hurting their benefits.It is certainly a tough decision I can see both sides again she wrote and excellent article with plenty of information.

Betty
November 15, 2014 at 8:49 am

I don't draw 1/2 half of my husband's SS, why? I've worked part time over the years, am I drawing off my SS & can I reapply to draw off my husband/s SS?

lennyp
November 07, 2014 at 4:13 pm

To take burden off social security why would't the government allow 401k and IRA disbursements tax exempt and hold off social security until age 70.

barry
November 07, 2014 at 3:37 pm

What a bunch of garbage. Get your well deserved retirement money ASAP. You could die anytime and the older you get the closer to death you get. I started working at age 16 and over the many years I have paid a lot of money into social security so I want to make sure I get at least some or most of it back. I started collecting social security at age 62 and started collecting my pension at age 55.