Just over a third (36 percent) of workers file for Social Security benefits as soon as they can, at age 62. This compares to the 1980s when almost 50 percent of workers claimed benefits at age 62. What this trend reveals is not that Americans are working longer — labor participation rates for older Americans have not changed significantly in recent decades — but that Americans are healthier, wealthier and making smarter decisions about when to sign up for benefits.
There are two good reasons to jump into Social Security as soon as possible: If you really need the money to put a roof over your head and food on the table or because you are in ill health or have other reasons to believe you will not live into your 80s.
But if you have any sort of retirement nest egg and you can foresee an average life expectancy or better, then there are six good reasons to be patient and let your Social Security benefits grow.
1. Social Security is the best investment you will ever make. As long as you have other funds to pay for your daily needs, Social Security provides a super investment, especially in this era of near-zero interest rates. Your benefits increase approximately 8 percent for each year you wait. That’s a risk-free return of 8 percent at a time when bonds are yielding 2 or 3 percent and a savings account in a bank pays less than 1 percent. Even a high-yielding stock, like a utility or oil company, offers only 4 or 5 percent, and those investments are exposed to the gyrations of the stock market.
2. It’s the best annuity you can buy. Social Security operates like an annuity. You buy in with the tax taken out of your paycheck during your working life, then you get paid back a monthly sum for the rest of your days. Your monthly benefit depends in part on how long you’ve worked and how much you’ve earned. But once you hit age 62, you’re eligible for an automatic increase of about 8 percent a year until age 70. The price of this kicker is the money you don’t get in your 60s. The payback is the additional 8 percent a year in your 70s and later. This increase to your annuity is better than anything you can expect from a commercial insurance company, because the insurance company uses today’s near-zero interest rates to figure future payments and also prices in a hefty profit.
3. Your benefits increase with inflation. Unlike many annuities and bonds, Social Security benefits are adjusted upward based on inflation. Last year it was only 1.7 percent. But remember, this is above and beyond the 8 percent you get for waiting.
4. Social Security provides extra benefits for the lower earning spouse. For a married couple there’s an extra bonus for the higher-earning partner to wait to file for benefits. The technique is a little complicated, but it works. The primary earner (usually but not always the husband) delays claiming benefits, while his wife takes benefits early. Assuming the wife outlives her husband, she then gets to step up to her husband’s benefits. The strategy helps married two-earner couples most, but married one-earner couples also benefit. This early/late strategy is equivalent to purchasing a second-to-die or joint life annuity.
5. Delaying benefits calms your fears. A big concern of many retirees is the fear of outliving their money. Unless you’re very well off, you cannot live solely on the income from your investments, but will have to dip into the principle. If your stocks or bonds suffer from a bear market, then you will likely have to dig deeper into your savings. Since some 25 percent of us will live into our 90s, that money has to last a long time, and the more you dip in, the sooner it runs out. But you never “dip” into Social Security. If you can just wait until 66 or 68 or 70, then that higher payment comes every month, for the rest of your life, even if you live to be 100.
6. It’s a bet on the home team. With any investment, there is an element of chance. If you begin Social Security early, you “win” if you die young. But that’s not much of a victory, is it? If you wait, then you “win” if you keep on living. And wouldn’t you rather bet on yourself? So before you rush to fold your Social Security card, remember, sometimes you have to know when to hold ’em.
Tom Sightings blogs at Sightings at 60 .
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6 Reasons to Delay Social Security originally appeared on usnews.com
