Social Security - Should I Delay My Payout?
So digging a little bit deeper, I'd like to answer the question, when should you start Social Security? Should you delay? What are some of the different options? Well the answer is pretty simple. It depends. There are so many different factors but we're going to present a few different options and hopefully help your decision making process.
You can start collecting benefits any time from the ages of 62 to 70, although there's some legislation right now that's close to getting approved that's going to change the numbers.) However, as of today, if you start at 62 you're taking at a reduced number. FRA (full retirement age) is 66 to 67, based on the year that you were born. Then of course you have age 70, which is when you reach your maximum payout.
Let's look at age 62; if you delay a year you get an 8 percent bump, delay another year another 8 percent bump. That is very significant. Now the Delay rule came in about 2009, right around the crash, an interesting time. You had to decide if you wanted to take it then, after your investments have lost so much money, or do you want to delay and get that 8 percent which clearly the market was not giving us at that time. So, if you delay your benefits from age 62-70, it's a 32 percent increase.
One of the things you want to look at, and we get asked a lot, is the break even point. Let's look at a scenario here where somebody is taking $1,200 a month at age 62 and if they delay to FRA it becomes $1,700 a month. Over the year it's $14,400 vs $20,400, you go out over five years that person at age 62 is taking $72,000. We then divide that by the $6,000 difference, we come out with 12 years. So if you delay until age 70 or 67 full retirement age, you're going to be seventy nine years old. You know for some people that obviously is late in life. It just depends on some different circumstances so let's look at those circumstances.
So you've got single, married, and then health. You also have to consider pensions. In addition, investments obviously make a big determination factor when we are going through this decision process.
So first your single, meaning never married. (If you're divorced or if your spouse has passed there are other options) You have to look at your investments, are you collecting a pension and does it make sense for you to delay or not? It depends on the financial plan and your monthly income. Obviously, if you can delay, delay. Having a financial plan will help you determine what your income will look like when the time to collect nears and you can plan accordingly.
Next we have married couples, there's a couple of different scenarios. I always try to have the spouse collecting the higher number (what they're collecting every month and year) delay and have the other person start early, Why? Because if one passes you're always going to get the highest number not both. That is the ideal scenario, but again that will depend on what your financial plan looks like.
One consideration to always take into consideration, regardless of the scenario, is health and longevity. We talked about the numbers, 12 years to break even. So when you look at that if there are any health issues then you would start sooner than later. If you don't have them now then you also look at delaying. I think those are the different scenarios that I see on a regular basis as always.
This is why it's important to talk to an advisor to give you that advice to help you. Creating or having a financial plan is a great place to start so you know what your best options are when the times comes. If you want to learn more about our process for creating financial plans then click here.