Are You Better Off Waiting to Start Social Security Benefits?

Editor's Note: This story originally appeared on NewRetirement.

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.

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, they are so many reasons to wai-ay-ay-ay-ay-ay-ait.

Social Security Is Designed to Only Replace 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 Is Social Security Provides a Much Higher Percentage of Income to Most Retirees

According to Social Security’s Fast Facts 2022, seniors are much too reliant on Social Security benefits. According to the report: Among elderly Social Security beneficiaries, 37% of men and 42% 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, if you claim early could be giving up $100,000 or more in benefits over your lifetime. One hundred thousand dollars! That is a lot of money!

If you have not yet started your Social Security, the best thing you can do to live more comfortably is to wait to claim your benefits. Think about how much you are gaining and giving up by waiting.

You can claim full benefits when you reach your full retirement age (FRA) as set by the Social Security Administration. Full retirement age is 66 if you were born from 1943 to 1954. Full retirement age increases gradually if you were born from 1955 to 1960, until it reaches 67. For anyone born in 1960 or later, full retirement age benefits are payable at age 67.

• For each year after your FRA, up to age 70, your benefits increase 8%, meaning you can access 32% more at age 70 than at age 66.
• If you start benefits before your FRA, they are reduced based on the number of months you receive benefits before you reach your full retirement age.
  • For example, if your full retirement age is 66, the reduction of your benefits at age 62 is 25%; at age 63, it is about 20%; at age 64, it is about 13.3%; and at age 65, it is about 6.7%, according to data from the Social Security Administration.

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.