Dear Liz: I’m a single person with no children. I worked for one private employer for 36 years, retired from there at 54 and am now 57. My home is paid off. I receive a pension of $2,400. I’ve been working a nearly full-time job averaging $3,800 a month with 8% going into a 401(k) and 4% being matched. I have observed many fellow workers wait till 65 to collect Social Security and then die a few years later. I also volunteer at my local VFW and listen to people complain about the lack of money they have, especially the women, who unfortunately relied on their dead husbands. So would it be bad for me to start collecting my Social Security at 63?
I am a very healthy person and longevity is in the family.
Answer: Some people do die shortly after retiring. Most, though, live well past the “break-even” age, when the smaller checks they give up by delaying Social Security are more than made up for by the larger checks they receive by waiting.
And the ones who die early … well, they’re dead. They no longer care about Social Security checks. The ones who care intensely about how much they’re getting are those who survive and run through their savings. Perhaps some of the women at the VFW had husbands who started their retirement benefits early, thus stunting the survivors’ checks their wives are getting. A few years’ delay could have made a huge difference to these women, who may have to live for years or even decades on a too-small benefit.
That’s why it’s so important for the higher earner in a couple to delay starting Social Security as long as possible, preferably to age 70, when their benefit maxes out. That’s also good advice for single folks who haven’t been previously married and don’t have another person’s benefit to supplement their own.
Plus, starting Social Security before your full retirement age of 67 means you’re subject to the earnings test. That test reduces your check by $1 for every $2 you make over a certain amount, which in 2024 is $22,320.
Your good health and family longevity don’t guarantee a long life, but they certainly make it more likely. Maximizing your Social Security benefit is a powerful way to ensure you don’t run short of money in your old age.
I disagree with you. I took my social security at age 62 instead of 65. My math works out if I had a twin who waited until 65 to take his full SS he would have to be 73 of age to catch how much that I made and he would surpass me but I invested half of my SS in the stock market and came out way ahead of him. You mentioned the magic number but never said what it was. I wish that you would have explained that.
Glad it worked out for you, but stocks are hardly a risk-free investment compared to the guaranteed return of delaying the start of benefits. Also, an early start stunts the retirement benefit for the surviving spouse. This research offers a good explanation of why waiting is typically the better option: https://www.nber.org/papers/w30675.
In the last couple of columns, you have mentioned the earnings test before full retirement age in a negative context and as a reason to delay starting benefits.
What seems to be overlooked is that reduced SS benefits due to the earnings test are “added back” to the calculation of benefits later, so the are not really “lost”.
Also, your total income will be higher, as only $1 is “delayed” for every $2 earned above the cap. Plus you may still be contributing towards an employer savings or pension benefit.
I have unfortunately seen a friend start benefits early for financial reasons, then purposely work lower hours in a seasonal job to avoid being over the cap. However, they would have been better off to work their seasonal job to the max, resulting in a higher total income and employer benefits, and also having higher SS benefits in the future when their benefit would have been recalculated.
The benefits are added back, but you lose the increases you could get by simply waiting. The vast majority are better off waiting. You can read more here: https://www.nber.org/papers/w30675