What are the benefits of waiting until full retirement age if I can comfortably live off of Social Security benefits now?
My wife has been retired from the workforce for eight years and the two of us have approximately $750,000 in assets and no debt. Our combined Social Security benefits today would be more than adequate to sustain our current lifestyle. Is there any point in waiting an additional three years to retire at full retirement age if I can comfortably live off of Social Security benefits now?
One of the biggest risk a retiree will face in retirement is the risk of outliving their savings. This is often referred to as "longevity risk". One way to protect against this risk is to maximize your fixed sources of income, i.e. Social Security. Although you can sustain a standard of living currently on Social Security, this may not always be true. Therefore, consider depending on your portfolio of $750,000 for income and delay taking Social Security for as long as possible. Each year that you delay taking Social Scurity benefits, if will increase the amount you receive annually by approximately 7% to 8%. This can be viewed as a guaranteed rate of return that would be hard to earn elsewhere.
Well, you get a nice increase every year. So if you dipped into your savings to subsidized your living you would have more monthly income each month after the 3 years. The calcuation is how much annual is the difference once you begin taking social security in 3 years and then will see where the crossover point is from the money you used to subsidized your lifestyle. Is it 10 years, 12 years, etc.. and what is your life expectancy? At the end of the day, you will probably fine either way, but as a rule of thumb, the longer your life expectancy & the better it is to put off social security if possible. It is a mathematical question with a few assumptions made, namely longevity & rate of return on assets. But some things aren't all about money. If it makes you feel more comfortable to take social security now & not dip into your nest egg at all, that is a lifestyle choice.
Hope this helps and best of luck, Dan Stewart CFA®
There are many things to consider when addressing your question.
- What was your source of income for the past 8 years? If it was the retirement plan it may be wiser to continue that and wait on the SS. Each year that you wait the benefit goes up 8%. Where can you go to get a 8% return on your investments that has a Cost of Living adjustment as well?
- Could one of you live on the larger of the 2 SS amounts? One of you will die before the other and at that time the survivor will receive the larger of the tow amounts.
- How would you pay for a Long-Term Care event and what impact would that have on the other?
- How are your retirement funds currently invested? Too much risk or to little or just right?
- What is state of your current health. If it is good, then wait on the SS. If you have conditions that will shorten your life expectancy, then maybe take it early.
- What is the longevity in both of your families. If all live to a ripe old age that would suggest waiting on the SS whereas if every tends to pass on in their 60’s or 70’s” then taking it sooner could be smart.
There is also the option of one of you taking SS now and wait on the other.
Giving you the correct answer for your situation cannot be done in this venue. You should seek out a CFP® professional and get their input after you provide a complete overview of your situation.
That depends on several things. Nort having either of your dates of births makes it difficult to answer definitively.
If one of you was born prior to January 1, 1954, you would qualify for a spousal benefit. When the other spouse reaches full retirement age (FRA) and begins taking his/her benefit, the other spouse can file a restricted application for a spousal benefit and receive 50% of the other spouse's benefit. That allows the one receiving the spousal benefit to grow (8%/yr) their own benefit until he/she reaches age 70.
Even if you both wait until your own FRAs to start taking your benefits, this is still better than drawing early. Claiming prior to FRA reduces your benefit.
What many forget to consider are the survivor benefits. Delaying your own benefit increase the amount you receive, which also increase the amount your survivor will receive. If you take a reduced benefit from starting early, your survivor's benefit is also reduced. If you can both wait until age 70, you will maximize both your retirement and survivor benefits.
Social Security is complicated. Consider having someone do a detailed analysis of your options to get a closer look. There are online calculators that can help. Getting this done will give you the information you need to make the best decision. Good luck!
Yes, there is a potential substantial benefit for waiting. The benefit is a guaranteed 7%-8% annual increase in your social security benefits for each year you wait, until age 70. So, unless you have your money invested in something that guarantees you will earn 7%-8% compound each year (which does not exist), or you don’t believe it is likely you will live until your Social Security Administration assumed life expectancy, then you would be better served living off your cash/investments, while waiting for your social security benefits to increase.
However, please note, that depending on how much you and your wife will earn from social security respectively, it might make sense for one of you to claim sooner, have the other spouse receive only a spousal benefit, and then for the spousal benefit individual to switch to his/her own benefits at age 70. There are many factors that go into this type of claiming strategy, and it is something you should discuss/confirm with a qualified tax-advisor and/or financial planner.