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Should You Delay Social Security? Thumbnail

Should You Delay Social Security?

Retirement Funding

by Paul Ruedi

 Most retirees have heard about the monetary benefits of delaying Social Security. But that didn’t stop roughly a quarter of men and women from signing up for Social Security at the earliest possible age (62) in 2024 per Social Security Administration data. However, it appears people are becoming more educated on the subject, as those numbers are down considerably from 2005 when around half of women and men signed up at the earliest possible age.

You will take quite a haircut if you claim benefits before full retirement age (FRA), which is between 66 and 67, depending on your date of birth. Suppose your full retirement age is age 67 (you were born in 1960 or later). At 67, you get 100% of the projected benefit at your FRA. But if you claim at age 62, the earliest date possible, you will take a 30% haircut.

So, if your FRA benefit is $2,000, for example, your benefit at age 62 would be $1,400. Claim at age 63 and your benefit is reduced by about 25%, at 64 your benefit is reduced by about 20%, at 65 it is reduced about 13.3%, and at 66 it would be reduced about 6.7%.  

But what if you wait past full retirement age? Again, for someone born in 1960 or later, for every year you wait to claim past your FRA, your benefit will increase by 8% per year. A person with a FRA benefit of $2,000 who waits until 70 would see their benefit increase to $2,480.   

You’d think the gap between the $1,400 per month for the person who claims at 62, versus the $2,480 per month benefit at age 70 would motivate everyone to delay. But people often worry they may not live long enough to break even or get ahead of taking a lesser benefit at age 62. That very well may be the case, and by delaying Social Security you do accept this risk. But if you look at a non-smoking, relatively healthy married couple at age 70 there is a 50% chance one of them will answer the doorbell at age 93.

Like all financial questions, the answer for when to claim Social Security is, “it depends.” There is no one-size-fits-all solution. If you aren’t sure when to claim Social Security in order to optimize how much you can spend throughout retirement, you may want to talk to a retirement planner.

Paul Ruedi is the CEO of Ruedi Wealth Management in Champaign, Illinois.