If you handed a cashier a dollar for change, and they handed back 75 cents…what would you say?
If you take social security at age 62, that’s exactly what’s happening.
Simply put, social security is a return of the tax you paid during your working years.
Waiting to take it only provides you more of what’s already yours…up until your full retirement age, which is the only time you’re actually getting more than you put in.
Still some people are okay accepting the 75 cents – why? For most, it’s out of their hands. 56% are forced to retire and take their benefits for health related issues, with 24% taking their benefits due to job loss.
For everyone else, you might be asking yourself “Is it really worth waiting?”
Here’s what the math tells us:
If you delay from 62 to 66, you will lose out on 4 years of payments, but 11 years later at your age 77, you breakeven.
In other words, the difference of your bigger benefit will equal the total amount you received from 62 to 66 at the age of 77.
If you delay from 62 to 70, you will lose out on 8 years of payments, and breakeven at age 80.
Finally, if you continue working to age 66, and delay your benefits to 70, your breakeven is age 81.
There’s one more fact to consider, and that’s Social Security provides annual raises to offset inflation called a cost-of-living adjustment, which has a rough average of 3% over the past 30 years.
Receiving these adjustments increases the time it takes to breakeven; 62 to 66 increases the breakeven from 77 to 81, 62 to 70 increases the breakeven from 80 to 84, and working to 66 and delaying to 70 increases the breakeven from 81 to 86.
One consideration beyond the numbers, is how long people actually live. The truth, is that on average people live just about as long as the breakeven point, which means it does not really matter when you take. This is known as ‘actuarial neutrality’.
In other words, this means that if you start receiving your benefits earlier or later, you should receive about the same total money over your lifetime.
BUT because delaying your benefits provides a larger monthly check, most experts advise you to hold off for as long as possible.
If you can afford to wait, and generally have longevity on your side, starting social security later to at least your Full retirement age pays off over the long term.