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April 23, 2012 12:34 PM

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When should you take Social Security?

By: Jack Otter

(iStockphoto)

(MoneyWatch) When should you take Social Security? It's a question I get all the time, from in-laws, friends of my parents, and MoneyWatch readers. For most people, the answer is straightforward, if not popular: As late as you can, the closer to age 70 the better.

The reason is simple: The longer you wait, the higher the payout. Granted, this advice is useless if you can't afford to wait. But if you have any flexibility at all, it's important to consider the numbers. Last year, while doing research for my book, I was struck by the fact that, as interest rates fell, the "return" you get by waiting looks better and better. Over the weekend my former colleague Jack Hough, at SmartMoney magazine, pointed out that the case for waiting has gotten even stronger since then, as interest rates have continued to fall.

The easiest way to understand the issue is to look at the numbers:

If you are making $75,000 and you retire this year at age 62, your annual Social Security payout would be about $16,300 (that number will vary depending on your earnings over your lifetime). If you wait until your full retirement age of 66, your Social Security income in 2016 will be around $22,600. If you can hold out until age 70, expect to bring in more than $30,000.

Some people prefer a bird in hand, and they argue that you're better off taking the checks at age 62 and investing the money. Here's the problem: You would have to earn around 8 percent a year on your Social Security checks to match that payout. There's no investment in the world that pays 8 percent a year without a lot of risk. Despite all the fear over Social Security funding levels, the program has a U.S. government guarantee behind it, and even if you're skeptical of the Treasury, it's far safer than junk bonds that yield 8 percent.

Holding out for bigger checks becomes more valuable the longer you live. Using the numbers above, if you live to age 90 you'll get $170,000 more in Social Security by waiting until age 70 to take benefits. Of course it's great to have a bigger paycheck; it's also a nice form of inflation protection. The bigger your checks, the higher the dollar amount of any cost-of-living adjustments. Unless you're in ill health (and therefore may not live long enough to benefit) or simply can't afford not to take Social Security early, it's a no brainer.

The broader lesson here is what led to the name of my book: Worth It...Not Worth It: Simple & Profitable Answers to Life's Tough Financial Questions. While managing money is never easy, the answers to many of the questions we face are fairly simple, once you see the numbers. The same is true for life insurance, investing, and even whether to use your credit or debit card.

>> View all articles by Jack Otter
Jack Otter is Executive Editor of CBS MoneyWatch.com. Prior to the launch of MoneyWatch, he served as deputy editor of Best Life magazine and as features editor of SmartMoney magazine. Otter's writing has appeared in The Wall Street Journal, O magazine and The New Yorker. His new book, Worth It...Not Worth It: Simple and Profitable Answers to Life's Tough Financial Questions, will be published on May 1.
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by nuffera April 24, 2012 2:27 PM EDT

I do believe you are not gearing this info toward regular people. Most people who are on social security today could never dream of collecting 16,000 a month. Most of us do with less than $2000...I started collecting at age 63...I might be dead by the age of 70...

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by paulbailey100 April 25, 2012 2:21 PM EDT: His article says ANNUAL income of 16,000, NOT MONTHLY.
That comes out to about 1,333 a month.

by mercury3424 April 24, 2012 9:10 AM EDT

Follow the oldest financial advice on record: Take the money and run!

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by Leda50 April 24, 2012 9:25 AM EDT: Take the money. It will take you more than 10 years to recoup what you didn't take at an earlier age if you wait until you're 70. Do the math. This is a trick so that others can continue to use your money.


by TimeToEvolve April 24, 2012 1:12 PM EDT: If you are a Republicon you should not take it at all. Because you don't believe in socialism and social programs. You should take personal responsibility. And the heck with grandma.

by Hoax-and-Chains April 24, 2012 8:06 AM EDT

The government gives billions to foreign countries every year but they can't replace the money they stole from social security.

Reply to this comment


by Leda50 April 24, 2012 9:23 AM EDT: Thank you. I am so glad to know that someone else remembers, and is willing to remind us, of this fact; our money was stolen from the Social Security Fund, and has not been replaced.


by johnburgess12 April 25, 2012 11:02 AM EDT: that is a good way to say it, the government wants to look good in the eyes of the world, but sadly said it does not work that way, they always bite the hand that feeds them.

by abradbard April 24, 2012 7:54 AM EDT

Your not exactly telling the true picture. If someone is making $75,000 a year and they are younger than 66(based on year born) they can't collect there entire social security. It starts getting reduced(held for you till later date)if you are earning(as in working) more than $14,640. Also assuming you stopped working before 62 the total amount of social security you get between the age 62 and 78 is the same regardless of what age you start. If you start at age 62 you will get less per year than age 70 but at age 78 the total amount would be the same.

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by JackOtterEd April 24, 2012 10:43 AM EDT: Abradbard - The key point is that those larger checks continue after age 78 for the rest of your life. A 66-year-old health woman can expect to live to 86, and has a very good chance of living into her 90s. Every year past 78 means more money. Possibly hundreds of thousands of dollars. Basically, it's a bet that you will live long. If you don't, you won't be around to regret the decision. If you do, you'll double your income. That's a bet I'll take.


by SparkyVA April 24, 2012 7:53 AM EDT: I took my retirement at 63 a year and a half ago. Getting about 1,700 a month for about 20,000 a year. There is one rule if you find yourself invested in a ponsi scheme - get out as quickly as you can. You have no idea if the conditions described above will even exist in 5 years or even next year. We know that the cost of living index calculation has been changed several times to "take out the volital elements". I.e. as gasoline and other energy costs go up - you loose more buying power. The government cannot afford Social Security: it is no secret, so they will do what they can to stretch out the available funds. Suggesting you wait is one of those methods of stretching. Drastic action is coming to "save SS". So again, with a ponsi scheme, get out as fast as you can. You will never get what you have been promised.; Reply to this comment


by Hoax-and-Chains April 24, 2012 7:49 AM EDT: Get it while you can.; Reply to this comment


by DrBopp April 23, 2012 11:09 PM EDT: Recalc.... I made an error.
If delayed until age 67, it will take 12.94 years to catchup than if benefits began at age 62.
If delayed until age 70, it will take 8.33 years to catch up.
So it will be much longer to recoup at age 67 than previously stated and 14 months (1 year 2 months ) shorter than previously reported for benefits beginning at age 70. Still, it would be 11 years past the average life expectancy of an African American male.
Pardon the error on my part, but it still does not change my conclusion.; Reply to this comment

by DrBopp April 23, 2012 10:41 PM EDT

Your reasoning is somewhat flawed, especially for African American males. If any person were to begin drawing benefits at age 62 of $16200/year, it would take approxiamately 7.76 years to catch up in monies recieved if they waited until age 67. Delay until age 70 and it will take 9.51 years to equalize. The average life expectancy for African American males is 66.1 years, so delaying until 67 or 70 could mean that many men(and women) will never draw one penny of the money they are entitled.
Also, if they did delay their benefits until age 67, add 7.76 years to that and you are looking at 73.76(73years, 9 months), before they catch up. The average life expectancy for all Americans is 76.5 years. Wait until 70 and you have to live until you are 79.51(79years, 6 months) to catch up which is 3 years pass the LE average for all Americans and 13 years pass the life expectancy for African Americans.
I am not saying that everyone will die off at the life expectancy average age, but it is documented and these numbers do not lie. Even with improving life expectancy numbers due to advances in medicine and a more aware populace; it is clear to me that waiting has too many risks to ignore.
I advocate starting as early as possible and receiving these benefits as long as you can. After all, you paid for it!

Reply to this comment


by der_axel April 25, 2012 5:53 PM EDT: DrBopp. Average life expectancy isn't a useful number here, because it is the average of everyone thats born, and that includes all the people that die before the age of 62.
What we need to know is what is the life expectancy of people who reach 62.

The average lifespan for someone who makes it to 65 is 80 for African American males so they should take the money at 66, and other groups are all 50%+ likely to make it to 82 which is the cut off for waiting until 70.

Check out table A2 in the linked document.
http://aging.senate.gov/crs/aging1.pdf

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