One of the most important considerations in retiring is determining what to do with your social security benefits. Given the various options available, it can be a little overwhelming to figure out what to do. Yet there is growing research that shows the benefits of delaying social security.
Many of us are already familiar with the large role that social security plays in a retirees life. If you aren’t familiar, here’s a quick refresher:
Clearly, this is a source of income that means a lot to a large number of people. And unless you’ve got millions upon millions in an investment account, it will probably be a significant source of income for you as well.
Which leads to the question of when, exactly, should I take social security? How can I make the best use of this asset that I’ve worked for over the last few decades?
Benefits of Delaying Social Security
I was recently reading about this issue. A group of economists wanted to compare what will provide the best financial impact for retirees. They compared things like working longer (and thereby delaying social security) with other methods of ensuring retirement (like increasing savings rates, lowering investment costs, etc).
Why is delaying social security so effective? To answer that, we need to understand the basics of how the social security system works. People who are eligible will be able to start claiming their social security benefits at the age of 62. But you don’t have to claim it then, you can wait all the way up until age 70.
Why would someone wait 8 additional years to receive their benefit? Because the longer you delay taking your benefit, the higher benefit amount you receive when you do take it.
How much more will your benefit be if you delay taking it? As much as 8% per year.
In one hypothetical example offered by the Social Security Administration, a person turning 62 in 2018 can start receiving a $953 monthly benefit. But if they decide to wait until age 70, then they would receive a monthly benefit of $1,681. That’s $728 more per month, or a 76% benefit increase, for the rest of their life.
Clearly, the difference in these two benefit amounts is quite significant. And it could play a large role in whether you’re able to retire comfortably, or whether you’ll have to be pinching pennies for the rest of your life.
And beyond the financial implications, there is another benefit of working longer. People who continue to work, even after “retirement age”, are mentally sharper, and have larger social connections, and more meaningful relationships.
This doesn’t mean you have to work 50-60 hours a week. It could mean working part-time at something less stressful and more enjoyable. Or starting up a consulting business that allows you to work 15 hours a week and have control of your schedule. The point is that having a meaningful activity to engage in will increase your physical and mental health.
By working longer, and waiting to take your social security benefits, you have the benefit of significantly increasing your monthly income while also increasing your happiness and life satisfaction.
So what do you think? Do you see the benefits of delaying social security? I’d love to hear what you think. You can email me at scott@dev-forthrightfinances.pantheonsite.io, call me at 424-258-4460, or contact me here.
Oh, and one more thing. If you’re thinking of retiring soon, be sure to check out my recent articles where I answer the question: How Do You Know If You’re Ready To Retire? Here is Part 1, and here is Part 2.