When you start Social Security matters

By Dr. Harold Wong

July 4, 2014

Let me cover the dramatic difference in taking SS at age 62 instead of 70. Waiting until age 70 really matters if you are married and both have long life expectancy.

Your expected life expectancy is one of your key factors in deciding when to take SS. Let’s compare taking 100% of SS benefits at age 66 versus 132 percent at age 70. Mathematically, it takes you 12.5 years (if you take SS benefits at 70) to make up the difference of not collecting 4 full years of SS from age 66 to 70. Here’s where many Baby Boomers make a mistake: they plan by average life expectancy instead of the life expectancy of the longest-surviving spouse. On average, Baby Boomers will live until 83. However, in year 2000; the Society of Actuaries study showed some startling statistics. If a married couple is 65, there is about a 50 percent chance that at least one will live until age 92 and about a 25 percent chance that at least one will live until 97.

Example 1: You are a single Baby Boomer born in 1950 who earned $50,000. When the Great Recession started in 2008, you looked at your SS monthly benefit choices: $1,070 if took benefits at age 62; $1,489 at 66; or $2,047 at 70. If we ignore any future cost-of-living increases, here’s the total SS benefits would have by age 83: $269,640 if took SS at 62; $303,756 at 66; or $319,332 at 70. One argument for taking SS early is that you can invest the money and so your total income is the same, no matter what age you chose to take SS. That’s a logical argument, but it assumes there is no risk from stock market crashes and being victims of scams. However, you can take the position “I’ll live or die with the consequences if I lose money with my investments”.

Example 2: You are a married Baby Boomer husband and don’t worry about your spouse. Suppose you had consistently earned the higher income and your wife is 6 years younger. Suppose you decide to start SS at age 62 and get $17,000 a year versus $32,000 at age 70. Suppose your wife did not work long and discovers that taking half of your (once she becomes age 66 Full Retirement age) SS benefit is higher than what she would receive on her own earnings history. You live until 88 and she lives until 97. If you took SS at age 62, you would collect $17,000 each year for 26 years, or a total of $442,000. Starting when his wife became age 66 (Full Retirement Age), she collects half of your SS, or $8,500 each year for 16 years from her age 66 to age 82, or a total of $136,000. Once you die, she can collect your full SS benefit (but not both yours and hers) of $17,000 for 14 years from her age of 83 until she dies at 97, which is a total of $238,000. The total this couple will collect is $816,000.

Example 3: You actually love your spouse and wait until age 70 to collect your SS. Assume the SS benefits are the same as Example 2. You would collect $32,000 for 18 years, a total of $576,000. Your wife would collect $16,000 each year for 16 years, totaling $256,000. After you die, your wife would collect $32,000 each year for 14 years, totaling $448,000. The grand total for the couple would be $1,280,000. This is $720,000 more than if he took SS benefits at age 62.

Conclusion: Waiting until age 70 to take SS benefits really protects a younger spouse who has not earned much during her career. Receiving 85 percent more SS protects against future inflation and unexpected expenses.

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