Why Should You Wait on Social Security

April 11, 2016

Social Security is one of the most important components of retirement for Americans: 91% of individuals over 65 receive Social Security payments. For the majority of retirees (64%), Social Security represents over half of the income they receive in retirement. One of the options you have when taking Social Security is when to begin the benefit, which could change how much you receive over the course of your lifetime by hundreds of thousands of dollars.

 

The reason it is important to consider delaying Social Security (and increasing the benefit) is that people are living longer, and longevity can be a major risk in retirement if not planned for responsibly. Past the age of 65, over 50% of women live beyond the age of 88 and 50% of men are living past 85. If you are married, the chances are even higher that one of you will live past the age of 90. When planning for a potential retirement of over 30 years, it is important to make sure you are getting the most out of all of your benefits and Social Security is one of the most important variables you need to consider.

 

Delaying Social Security increases the value of your benefit by nearly 8% for each year that it is deferred. This can be very significant because there is also a built-in cost of living adjustment to Social Security which can act as an inflation hedge throughout retirement. Another important consideration when taking Social Security is not just for you but also your spouse if you are married. Social Security has a survivor benefit and the survivor’s benefit also increases when you defer. Below is a table highlighting what that can look like for a married couple taking Social Security at different ages.

 

It is always important to start with a plan when deciding what the right strategy for Social Security is for you. There are many factors to consider, both objectively and subjectively, to give you the best chances of having a successful retirement. However, it is important to remember that even though you might want to turn on Social Security as quickly as possible, you could be passing up a significant benefit and a protection against longevity risk.

 

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