Q&A: Postponing Social Security

Dear Liz: My question is on when to take Social Security. My financial advisor recommends that I file for my benefit at age 66 but suspend the application so my benefit can continue to grow until it maxes out at age 70. At 66, I would receive $2,614 per month. At age 70 I would receive $3,451 per month. In those 48 months I would have received $125,472. I calculate that it would take me 12.49 years to make up the difference of $837 a month. So why should I postpone until age 70? What am I missing?

Answer: There’s a big difference between postponing Social Security until your full retirement age of 66 and postponing again until age 70.

Postponing until full retirement age is pretty much a slam-dunk, if you can afford to do so. That’s because most people will live beyond the break-even point, which is typically somewhere between ages 77 and 78.

The break-even point for postponing until age 70 is between age 83 and 84, which is cutting it closer in terms of average life expectancy. A man who reaches age 65 is expected to live on average until age 84. Women reaching 65 are expected to live until 86.

But focusing just on break-even points ignores other, more important factors.

One is that waiting offers an 8% annual return between age 66 and 70. No other investment offers a built-in, guaranteed return that high.

Another has to do with survivors. If your spouse earned less than you, she would end up depending on your check alone should you die first. (Survivors get the larger of their own benefit or their spouse’s, but not both.) The larger the check, the better off she’ll be.

You can think of Social Security as a kind of longevity insurance that protects you against poverty in old age. The longer you or your spouse live, the greater the chance that your assets will be exhausted and that one or both of you will end up depending on Social Security for the greatest part of your income.

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  1. RIta roper says

    I get $1061 a month SSI and that’s my only income. I live in AZ and was told I have AHCCCS coverage but it’s the QI-1 coverage. I had a Humana HMO insurance which I disenrolled from that pays the 20% that Medicare doesn’t pay. When I was told I qualified for the AHCCCS insurance I thought it included medical coverage but now I’m trying to find out if it will pay that 20%. I’m a lung cancer survivor but need CT scans periodically and can’t afford the co-pay. Mayo Clinic is not a covered provider with Humana and I’m trying to be able to go there and get it paid for. I’ve gotten three different answers from three people as to what the QI-1 pays for etc. Can you help me out here? Thank you.

    • Liz Weston says

      I’m sorry that I can’t, Rita. I’m not an expert in how Medicaid and Medicare intersect or in Arizona’s plan. Have you been having trouble getting through to AHCCCS to ask?

  2. Once a person has reached full retirement age, I wonder if it is indeed worth it to postpone their benefit until 70. If they can get along without the benefit, as it would be if they postponed, why not take the benefit and invest a chunk of it each month?
    If you take it, it is money in your and your survivors’ pocket. If you postpone and don’t live long enough to have made it worthwhile to wait, you have left a lot of money on the table.

    • Liz Weston says

      The bigger risk is running out of money if you live longer than expected. You may be able to get a better return if you invest, but few people will actually do that…and in any case, you’d need to beat the built-in, guaranteed 8 percent return that waiting until 70 offers. Since your survivor would be left with just one check, it makes sense to make sure at least one of your benefits is as large as it can be.