Delay Social Security until age 70. That question is being asked by many Americans today as the bulk of baby boomers are now hitting retirement age. The longer life expectancies and the current tough economic times are also a factor in making this decision on whether to delay Social Security.
An American works their whole life. The government withholds social security from their paycheck. They retire. Then they collect Social Security retirement benefits. Its sounds simple, but it’s not. Unlike Medicare benefits, which the government mandates at age 65, the retirement benefits from Social Security can start at the first eligibility year of age 62 or be taken at any time, all the way up to age 70. A big decision for many.
Unfortunately, the biggest factor in figuring out this puzzle is how long a retiree will live; but, there is no crystal ball to determine life expectancy. Financial planning consultants differ on what move is better financially. That is good news for the retiree. That means there is no right or wrong decision. Some argue to begin collecting Social Security benefits as soon as the retiree first qualifies. The other suggests waiting until the retiree reaches age 70, to begin collecting benefits. Both options ware examined.
The retiree collect benefits at earliest eligibility. Usually age 62. The retiree will receive less benefits if they pick this option. The average 62-year-old collected less than $13,000 a year in 2012. The retiree could also opt to collect at any age up to age 70. The later in age the retiree waits, the more the retiree will collect.
The next option is to delay Social Security until the retiree is age 70. The average beneficiary for a retiree who started collecting at age 70 would be approximately $35,000 a year in 2012. In this day and age where very few people are receiving a defined pension benefit, that is a pension that pays a set amount per month until the retiree dies. That is not to be confused with a 401k plan or IRA, in which the retiree can elect to receive benefits at age 59 1/2. Most 401k plans and IRA’s are just not fully funded enough today to last until one’s live expectancy. Therefore, a person could plan on working till age 7o, and let their Social Security benefits, in essence, be a defined pension plan, with cost of living adjustments. It is not a bad strategy, in light of how old people are living today. In addition to retiring at age 70, the person should also be fully funding whatever tax deferred plan they may have. So in other words, the retiree can expect to receive $35,ooo on average in 2012 dollars when they turn 70. Most retirees could survive the balance of their life with that annual retirement income.
The choice is for the retiree to make. Once again life expectancy is the primary factor in making this decision. There is a temptation to take the money now. But to delay Social Security until a retiree turns 70 may provide a reliable and sustainable lifetime income. Finally, Social Security will be there for the retiree. They should not listen to the naysayers who say it will not be there.
By John J. Poltonowicz