Signed: Questioning My Plan
Dear Questioning: I, too, have “run the numbers” many times. Although Social Security will say that it makes no difference when you apply (they say you get the same in total benefits no matter which age you claim) with average longevity today being in the mid-80's (84 for men; 87 for women) that may not be true. I have done numerous “break even analyses” and have found that if one claims at their full retirement age instead of at age 62, they will have collected the same amount of benefits at age 78 in either case. That means that by living longer than age 78, you will realize more in total cumulative lifetime Social Security benefits by waiting until your full retirement age to apply. Similarly, if you wait until age 70 to claim, you will break even (collect the same in total benefits) at age 82, and if you live beyond 82 you'll get more in cumulative benefits by waiting. If you live well beyond those ages, the extra benefits can be very substantial.
I wonder if your friend included in his analysis how the “earnings test” affected his early benefits. If you are still working and you claim benefits before you reach your full retirement age, you'll be subject to Social Security's “earnings limit” ($17,640 for 2019) which, if you exceed it, will cause Social Security to withhold benefits equal to $1 for every $2 you are over the limit. This applies to both you and your wife. The earnings limit doesn't go away until your reach your full retirement age, so when contemplating whether to collect benefits before your full retirement age you should assess the amount of benefit loss you will incur if your earnings exceed the earnings limit. Although at your full retirement age (FRA) Social Security gives you time credit for any months you don't received benefits because you exceeded the earnings limit, it will take you years to recover any withheld benefits because they only slightly increase your benefit at your FRA to compensate for withheld benefits from over-earning (you need to live long enough to recover those lost benefits).
And did your friend consider this: your surviving spouse will receive 100 percent of the benefit you are receiving at your death. If you claim before your full retirement age, your surviving spouse will get the reduced amount; if you wait until after your full retirement age to claim, your surviving spouse will get the full amount of your benefit increased by delayed retirement credits. Benefits are about 76 percent more at age 70 than they are at age 62.
Of course, the question of when to apply must always take into account your current financial needs, your current health and lifestyle, and your expected longevity (considering your family history). Whether to claim early and invest those benefits or wait until later is a choice only you can make. But you should consider the above points and compare the guarantee of increasing your lifetime benefit amount by 6 percent to 8 percent for each year you wait to claim, against the interest or growth rate you might expect from investing in the securities market.
Russell Gloor is with the Association of Mature American Citizens (AMAC). The information presented in this article is intended for general information purposes only. The opinions and interpretations expressed are the viewpoints of the AMAC Foundation’s Social Security Advisory staff, trained and accredited.