Social Security: Now Or Later?

Delaying benefits will increase the size of your checks, but it’s not the best strategy for everyone.

- Sandra Block

Many financial planners, as well as this magazine, recommend waiting until at least your full retirement age—or, even better, until you’re 70—to claim Social Security. You’re eligible to file for Social Security as early as age 62, but if you do, your benefits will be permanently reduced by at least 25%. Waiting until full retirement age—66 for most baby boomers—means you’ll receive 100% of the benefits you’ve earned. And if you continue to postpone filing for benefits after you reach full retirement age, your payouts will grow by 8% a year until you reach age 70.

That, combined with cost-of-living adjustments in most years, is a return you’re unlikely to get anywhere else. Yet retirees seem to be ignoring those numbers: Nearly 60% of retirees claim benefits before age 66, and about one-third of those retirees claim benefits at 62. Are they misguided or onto something?

Figuring out when to file for Social Security usually comes down to a question that’s nearly impossible to answer: How long will you live? Retirees who wait until full retirement age or later will receive fewer checks over their lifetime, but the checks will be for larger amounts. The longer you live, the more delaying pays off.

Do the Math

The age at which you come out ahead by postponing benefits is known as your break-even age. For example, a 62-year-old top wage earner would come out ahead by filing at 66 as long as he lives past age 77. If he delays filing for benefits until age 70, he would need to live past age 80 to break even. That’s below the average life expectancy (84 for men and nearly 87 for women), but if you don’t expect to live that long, there’s no point in postponing your benefits.