It May Not Pay To Wait When Collecting Social Security

It's an age-old question for those nearing old age: How soon should you start taking Social Security?

At first blush, the answer seems like simple math. Regardless of whether you keep working, if you wait until age 70 to start drawing from the system, your monthly Social Security check will be nearly double what you'd get at age 62. The benefit at 70 also is roughly 20% to 25% more than what you'd get at the prescribed "full" retirement age — ranging from 65 to 67, depending on your birth year.

So why not wait? Isn't there more money if you actually are patient enough to get to the end of the rainbow?

Not necessarily, financial experts say. Of course, it's always best to wait if you can afford to, but there are a number of things to consider.

"I can make an argument for claiming early and I can make an argument for claiming late," said Jeannette Bajalia, president of Petros Estate & Retirement Planning, based in Jacksonville, Fla.

Bajalia, who's also president of a second financial planning firm, Woman's Worth, says it really depends on the individual. It's their custom needs that come into play, she says.

"It is a function of your unique life circumstances," Bajalia said. "You have to look at your whole income plan."

Health Considerations

One of the primary considerations is, of course, health. If there's a chance you're not going to live well into your 80s, waiting may not make sense, says Chuck Price, a Portland, Ore.-based investment advisor and host of the radio talk show, "Investing Simplified."

"If you need the money, you take it," he said. "If you have bad health, I would take it immediately."

What you may be leaving on the table by waiting depends on your current age and income level. You should also check the Social Security calculator and do your own tabulations to get a better picture of what awaits you.

For current incomes of $50,000 to $100,000, figures show you can collect anywhere from a total $95,000 to $110,000 between age 62 and the "full" retirement age of 65-67. The math is based on your monthly Social Security benefit and the number of months to "full" retirement. From 62 to the extended retirement age at 70, there's roughly $150,000 to more than $175,000 in total income involved.

Let's say you think 62 is too early and you have designs on ages 65-67 instead. Then you change your mind and wait longer. If you wait the three to five years to hit 70, then you could miss out on more than $100,000 in cumulative income.

Regardless of the scenario — whether you wait until 65-67 or go out to age 70 — figures indicate that it takes anywhere from about nine years, to more than 12 years, to make up for unclaimed funds. The differences in monthly income based on age show that it takes about that long to get ahead by waiting.

So if you don't see yourself living to your mid-80s, it may not be a good idea to wait. Then again, it may be hard to justify not waiting, given current life expectancies.

"The 70s are the new 50s because people are living longer," said Josh Mellberg, president of J.D. Mellberg Financial in Tucson, Ariz. It's not unreasonable to expect to live to age 90, he said, adding, "Life expectancy has increased substantially."

Investing Prospects

For the serious investor, taking that money now and trying to build on it yourself may be tempting. After all, that's six figures of income that could be multiplied and, perhaps, someday be converted into seven figures.

That might make sense for those who won't be relying heavily on Social Security as a primary source of income, experts say, but they urge caution. For each year you wait, your monthly Social Security income goes up somewhere between 6% and 8%.

Yield investors — many of whom are of retirement age — likely won't see that much, financial advisors say.

"That's a heck of a return," said Price. "There's no way you're going to get those kind of returns."

Aggressive investors would no doubt scoff at a comment like that, but advisors urge even the most seasoned market players to have a contingency plan. The active investor may already have a well-funded nest egg by the time they reach retirement, but for others Social Security is their fallback.

"You should not look at Social Security as an investment," said Mellberg. "You should look at it as longevity insurance."

Others To Consider

Another thing to remember is that it may be your Social Security, but it may not be all about you. If you're the primary breadwinner in your household, your spouse may miss out on significant benefits should you make the wrong move on Social Security.

When you're both alive, you get both Social Security checks. When the higher earner dies, the surviving spouse gets to collect the bigger check, but only that check.

So, if you happen to like your spouse and want to see them live a little more comfortably — even if you don't live long enough to get back the money you decided to forgo — you may want to defer.

"It's still one of the best sources of income," said Bajalia. "(It's) money you can't outlive."

Which brings up one last point. While some don't mind waiting, others might worry that funds actually may not outlive them.

Here are the facts as we know them today: The Social Security Trust Fund is expected to keep benefits at their current levels through 2034. Unless the fund is shored up, it means benefits will be cut to roughly 79% of current levels by that time.

Many experts, though, expect it to be secured by then, if not within the next few years. For those, however, who question the viability of the program, the timing of your claim may want to take that into consideration.

In many ways, however, it's similar to figuring life expectancy into the equation.

"You don't know," said Price. "That's the crapshoot."