Read This Before You Take Social Security Early
Social Security is a bit like the Stanford Marshmallow Experiment, the one where they place elementary-aged kids in solitude with a tantalizing marshmallow on a plate in front of them. “If you wait until I come back, I will give you another marshmallow,” the researcher tells them, “but if you eat any before I come back, even just a nibble, you will just have the one.” As you can imagine, the kids fidget in their chair after the researcher exits the room, their short legs dangling and their eyes flitting to the door to the marshmallow, to the door and back to the marshmallow.
Not surprisingly, many of these kids, despite the promise of a bonus pillow of sugar, decide to eat their marshmallow early. After the researcher comes back into the room to see an empty plate, they end up kicking themselves.
Psychological implications aside, the moral of the story is clear: it pays to wait, even though many don’t!
This is why it is not surprising that a similar (although admittedly much more convoluted and less adorable) thing is happening with what has been called “the single most important retirement money of your life”: when to start taking your Social Security benefit.
You see, although it pays to wait until full retirement age (66 in2019) or beyond to start taking Social Security, many retirees are still claiming early (at 62).
Let’s take a closer look.
It Pays To Wait!
How much exactly?
Well, that depends on which year you were born. For those born between 1943-1954, the difference between taking Social Security at 62 and waiting until your full retirement age at 66 is a 25% reduction.
If you take your check at 62, you only get 75% of your full check. But if you wait until 63, you gain an extra 5%. Then, during the next three years, you gain an extra 6 and two-thirds percent each year, getting you to 100% of your benefit by the current full retirement age of 66.
After that, things really start to ramp up. If you possess the will power and resources to delay beyond the full retirement page, you tack an extra 8% on to your check each year until age 70!
Now, I’m going to put that into perspective. Let’s say you have a full retirement benefit of $2000 per month. Taking it at 62 will reduce your benefit to $1500. Waiting until 70 will amp up your benefit to $2,640. If you do the math, that means that it pays an extra $1,140 per month just to wait and max out. And the best part is that this is a guaranteed income for the rest of your life!
To check the percentages for other birth years, check out this chart from ssa.gov:
But despite the favorable math associated with gritting one’s teeth to wait it out…
Many Retirees Choose to Take It Early!
In fact, according to Boston College’s Center for Retirement Research a whopping 48% of women and 42% of men choose to take it as soon as possible at 62!
And how many max out their benefits at 70? Less than 1 in 20 for both men and women.
The reasons for this are as individual as you or I. Part of it may be that retirees simply do not have the funds to make ends meet while they defer their Social Security benefits, although this is less likely than originally thought. Yet others may have a bleak life expectancy in which the larger checks will not have much effect. These are usually valid reasons to wait.
However, going back to those kids with the marshmallows, perhaps people find that it is just easier and more satisfying to take it now rather than later. After all, it is not only kids who have trouble delaying gratification.
And the last I’ve checked, even 75% of your monthly benefit can buy a quite a few bags of marshmallows.
Do You Need Help Deciding When to Take Social Security?
Well, you are in luck. We happen to know a thing or two about this subject. Give our office a call and we can sit down with you and help you make some decisions about your social security timing. Our office number is 937-492-8800.