Posted October 2013. Rewritten October 2014 Should you delay filing Social Security?Sooner or later almost every U.S. citizen must decide when to file for Social Security. After working and contributing to Social Security for at least ten years, Americans qualify for early benefits at age 62. Every year you delay provides an increased annual payout stream of about 7.3% up to age 70. Waiting to file until the current Full Retirement Age (currently 66) allows retirees to earn unlimited money without reducing their retirement income stream (though earnings do affect the taxation of the income stream). Beyond age 70, benefits only increase with the cost-of-living. For example, if a 62-year-old couple qualifies for a $20,000/year SS income stream but can afford to delay filing until age 70, then their income stream begins at just over $35,000! The math surrounding the delay decision is complicated, and the result is sensitive to several assumptions. especially these three:
This article by Michael Kitces sorts out the issues very well: How Delaying Social Security Can Be The Best Long-Term Investment Or Annuity Money Can Buy. And here is another one from Wade Pfau: Social Security: the Best Annuity Money Can Buy. After digesting these and other resources, here is my best advice:
Comparing purchase of a commercial annuity with delaying Social SecurityInsurance companies aggressively market annuities to 50-year-olds and up. Here are the elements of annuities:
In concept, delaying Social Security is very similar to purchasing a commercial annuity. To delay SS means you must use money from your investments (or continue working longer) to pay living expenses. Alternatively, you could use that money to purchase an annuity. But if you run the numbers you will conclude that delaying SS offers a much better return. So, before spending money on an annuity: delay social security. If you want a larger income stream than you can get from delaying Social Security, then shop for an annuity. Social Security's securitySome people worry that the SS system will run out of money after 2033. I expect the U.S. government to fix the SS financing problem before then. But even if they don't, economists estimate that retirees should still receive at least 70-80% of their SS income stream.
Additional Social Security linksThere are countless scenarios other than a long-time married couple where only one has accrued significant SS benefits. So you'll need to do the analysis on your situation. Fortunately, the world is full of Social Security resources to help you do this. Here are a few I've found helpful:
All the best, Tim This post is part of the Personal Finance > Retirement section of my site. To learn about or to subscribe to the RSS or email feeds from my site, go to IsbellOnline News. Edited with Grammarly |
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