Last week, I wrote about Social Security, specifically about some of the useful information I culled from the Social Security Statement for my mom. There was an interesting comment from a reader, ToughMoneyLove, regarding the benefit of delaying your retirement because the Social Security Administration gives you 8% bump in benefits each year. Here’s that part of the comment:
For your Mom, she will get an 8% bump in benefits for each year she delays taking SS until age 70. Definitely consider that. Where else can you get a guaranteed 8% return?
This may look good at first, but while you are delaying your Social Security benefits, you are receiving nothing. So you are giving up a whole year worth of Social Security income for an 8% increase next year. Let’s illustrate the point with this table:
If I stop working at 62, I get the reduced benefits of $18,156 for the rest of my life. That may sounds like a bad deal, but if I wait until my full retirement age (67 years old), it would take me 12 more years (to the age of 78) to catch up in the total Social Security benefits received. If I do not live to 78, I lose. The issue is even more pronounced if I wait until 70 — I would have to live to 82 to beat the system. With the average lifespan of American male being about 75, I am definitely NOT doing myself a favor by waiting.
If you receive benefits before reaching your full retirement age, your benefit amount will be reduced. Specifically,
Let’s assume that we only get 50% benefits between 62-66 and 67% at 67, this is what the table will look like:
In this case, it doesn’t matter if we collect at 67 or 70 because the scenario stays the same as above. However, these penalties make early retirement less attractive if you continue to work. In the example above, it you’re planning to work past 62, it may be worthwhile to wait until full retirement age. Once you live past 72 years old, you’ll be ahead of the curve.
For more information, please visit the Social Security Administration web site.