Quick Summary:
• Waiting beyond Full Retirement Age (FRA) is the least popular time to claim benefits, however it might offer the most reward
• If you are still working beyond FRA, you should consider a delayed file date
• Your health and family history are valid considerations for a delayed file date
• Your filing date can also have a big impact on your spouse
• Your filing date is best determined by looking at your entire financial picture
In Part 1 of our series we discussed some general concepts and important facts regarding Social Security. You can read Part 1 here.
In Part 2 we examined some reasons to file for benefits prior to Full Retirement Age. You can read Part 2 here.
Part 3: Reasons to Wait
Waiting beyond your Full Retirement Age (FRA) is the least popular time to claim benefits. The Social Security Administration published the ages at which all new claimants filed in 2014. In the chart below, you can see that less than 10% filed between the ages of 67-70. In fact, the earliest age of 62, was the most popular!
The most popular option is not necessarily the best
As we detailed in Part 2 of our series, there are a number of good reasons to file early. However, the reality is that a much higher percentage of people would benefit from a delayed filing.
It is human nature to put more emphasis on the present than the future. If we are offered something today, particularly money, it is difficult to resist even if the future benefit would be more rewarding.
The common term for claiming Social Security after FRA, is to “Delay Benefits“. The word “delay” has so many negative connotations i.e. a delayed flight, a traffic delay, a delay on your home renovation. No one likes delays! So perhaps we should simply change the name from “Delayed Benefits” to “Opting for More Money“. For those that live beyond their early 80’s, that is exactly what they will receive.
Below is an example of someone with an FRA benefit of approximately $2,000/month:
Reasons to File Later
• Still Working Once you reach FRA you can claim Social Security while continuing to work and not be restricted by the Earnings Test. However, just because you can start collecting benefits while still working, it does not mean that will be the best option. If your salary (or your spouses) cover your current expenses, it is definitely worth considering a later filing date for the guaranteed 8%/year increase in payments. You can not earn 8% in your savings account!
• Health Your health or family history indicate an average or long life expectancy. The “break-even” age for benefits received is around 81. If you live into your 90’s (as more and more people are) the total amount received from Social Security is significantly higher with a later file date.
• Don’t Forget Your Spouse Deciding when to claim benefits is not a personal decision but a family decision. When the first spouse dies, the surviving spouse has the option of continuing their own benefit or switching to the deceased spouses benefit, whichever is higher. If the spouse with the higher benefit delays filing, this could lead to significantly more income for the surviving spouse.
• Alternative Sources of Income Even if you have already retired, that does not automatically mean you should file for benefits. If you have other means of covering your expenses, waiting on Social Security could still make a lot of sense. In certain circumstances, you could also consider taking withdrawals from your retirement savings instead of filing for benefits. You will need to do a calculation to examine the feasibility of this option, however in some cases it could be beneficial to wait for higher Social Security payments thereby reducing your portfolio withdrawal needs in the future.
Your Social Security decision is one of the more important choices you will make during your transition to retirement. It will be of great benefit to make this decision while taking a holistic view of your finances. A plan that coordinates your income sources, expenses, healthcare, housing and estate planning will help illicit the answers to specific questions.
Please feel free to reach out with any questions!
