Editor's Note: This story originally appeared on Boldin.
Most of us count down the days, months, and even years in anticipation of starting Social Security. In fact, besides qualifying for Medicare, perhaps the retirement event many most look forward to is the day we can start receiving these benefits.
These song lyrics come to mind:
Anticipation. Anticipay-ay-tion … It’s makin’ me wait. It’s keeping me wai-ay-ay-ay-ay-ay-ay-ay-ya-tin — Carly Simon
However, retirees today may be relying too heavily on Social Security and starting the benefit too soon.
With prices skyrocketing, it is especially tempting to supplement income by starting Social Security as soon as you can. However, there are so many reasons to wai-ay-ay-ay-ay-ay-ait.
How Social Security Is Designed
Social Security is designed to replace just a small percentage of your pre-retirement income.
According to the Social Security Administration (SSA), “Your Social Security benefits are the foundation on which you can build a secure retirement.”
However, the SSA advises that this paycheck is designed to replace only about 40% of 70% of your pre-retirement income. (Social Security assumes that you will only need 70% of your pre-retirement income and that benefits should only represent about 40% of that income in retirement.)
So, if you earn $50,000 a year before retirement, then you would plan on spending $35,000 a year in retirement, and Social Security is designed to represent 40% of that income need — or $14,000.
If you earn more than average, then you should plan on Social Security replacing less — sometimes much less — than 40% of your retirement income need.
For example, if you earned $150,000 before retirement, your estimated monthly Social Security would be between $2,000 and $3,000 a month — or $36,000 a year.
If you earn less than average, then Social Security may replace slightly more of your income need.
The Reality of How Retirees Rely on Social Security
The reality is Social Security provides a much higher percentage of income to most retirees.
According to the SSA, many seniors are too reliant on Social Security benefits.
They report that: Among elderly Social Security beneficiaries aged 65 and older, 39% of men and 44% of women receive 50% or more of their income from Social Security.
What’s worse? 12% of men and 15% of women rely on Social Security for 90% or more of their income.
You’ll Be Better Off If You Can Keep Waiting
According to a report by the Center for Retirement Research at Boston College and an analysis from the Social Security Administration, more people are now waiting to claim Social Security.
However, the majority claim before the full retirement age of around 66:
- 31% of women and 27% of men claim at 62.
- 6% of all people claim at 63.
- 7% of women and 6% of men claim at 64.
- 10% claim at 65.
- 36% of men and 31% of women claim at 66.
Reasons to Wait
Depending on your income history and when exactly you start benefits, claiming early could be giving up $100,000 or more in benefits over your lifetime.
One hundred thousand dollars! That is a lot of money!
Deciding whether to wait to start Social Security depends on several factors, including your health, financial needs, and life expectancy.
Here are some key considerations to help determine if you might be better off waiting.
1. Higher Monthly Benefits
If you delay taking Social Security beyond your full retirement age (FRA), your benefit increases by about 8% per year until age 70.
This could significantly boost your monthly income if you live long enough to break even.
2. Longevity
If you expect to live longer than average, waiting can be advantageous because it maximizes your lifetime Social Security benefits.
The break-even point, where delayed benefits catch up with earlier, smaller ones, often occurs in your early 80s.
3. Current Income Needs
If you need the money now to cover living expenses or reduce debt, starting earlier (as early as age 62) may be a practical choice.
However, this reduces your monthly benefit by up to 30% compared to waiting until FRA.
4. Health Considerations
If you are in poor health or have a family history of shorter life expectancy, starting Social Security early might make sense, as you may not live long enough to fully benefit from delayed payments.
5. Tax Implications
Depending on your other income, up to 85% of your Social Security benefits may be taxable.
By waiting and allowing other assets to generate income first, you may be able to manage your tax situation more efficiently.
If Married, at Least One of You Should Wait to Claim
Delaying benefits is a good Social Security decision for anyone — you just get more money every month the longer you wait to start getting payments.
However, if you are married, you may have an additional incentive to delay benefits. If one of you dies before the other, then the surviving spouse will get to make a choice about which Social Security benefit to receive. (A surviving spouse is entitled to just one benefit — not both.)
Rule of thumb:
There is a simple rule to follow if you are married and want the best for your spouse: The highest earner in the couple should defer the start of benefits as long as possible up until the maximum retirement age of 70.
Don’t focus on who is older or who retires first. The key is to make sure the highest earner grabs the highest possible payout.
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