Waiting to take Social Security has hidden benefits

Dear Liz: When I was 62, I started Social Security and I’m currently saving half of my monthly benefit after taxes (about $750). My decision to take my benefits early was influenced by a financial columnist who suggested that if I started at 62 and invested half or more of it until I reached full retirement age, the lower early benefits would be matched by the investment returns by the time I’m 85. Is this advice still reasonable?

Answer: In today’s investing environment, it’s hard to match the guaranteed annual return you get from delaying Social Security benefits. You may do better investing in the stock market, but there isn’t an investment that can guarantee 6% returns right now, which is the approximate amount Social Security benefits increase annually between the earliest age you can take benefits (62) and your full retirement age (currently 66). The higher benefit you get by waiting is then increased by inflation adjustments each year, making it an even harder target to beat.

That’s not to say it can’t be done. In your case, it’s too late for second thoughts anyway. But most people are better off waiting, if they can afford to do so.

There are other good reasons to delay, even if you’re an investing genius. If you’re married, your spouse would be eligible for a survivor’s benefit should you die first. That benefit is equal to the Social Security check you’ve been getting. A bigger check could make it easier for him or her to make ends meet down the road.

Spouses who wait until full retirement age also have the option of taking spousal benefits first, and then switching to their own benefits later, after those benefits have had a few more years to grow. When you take benefits early, you lose the option to switch.

Even if you’re not married, you can look at Social Security as a form of longevity insurance. A larger benefit could be a big help if you live a long time and spend down your other assets.

Hopefully you understood all this before you put your retirement plan into motion. If you didn’t, then your situation could serve as a cautionary tale for anyone who’s trying to make decisions about retirement based solely on his or her own research. It’s vitally important to get a second opinion from a fee-only comprehensive financial planner. Even the most ardent do-it-yourselfer can miss important nuances when it comes to retirement, and those nuances can have a dramatic effect on your future quality of life.


  1. Liz, Could you please clarify the comment about spousal benefits: “When you take benefits early, you lose the option to switch.” Does that mean that if you take the spousal benefits when the spouse would have been 62, you can’t switch to your own at age 66? …..or if you take your own at age 62, you can’t switch to his at the time he would have reached age 66?

    • lizweston says

      It’s your own full retirement age that matters when it comes to switching. You can begin receiving spousal benefits at 62 if your spouse is already receiving or is eligible for benefits. If you start benefits before your own full retirement age, though, your benefit would be compared to your spousal benefit and you would get an amount equal to the larger of the two, without the option of switching later. Only if you wait until full retirement age to begin benefits would you have the option of taking spousal benefits for awhile and allowing your own benefit to continue to grow, so you could switch later (usually at 70, when your benefit would max out).

  2. I’m pretty dense, so please be patient. My husband died at 41. We were married almost 16 years. He made good money. I spoke to SS about what the benefit amount would be if I started taking it at 66 1/2. I am soon to be 56. I don’t make a whole lot, but I get along well. Can I take mine at 62 then switch to his full benefit when I’m 66 1/2?

    • lizweston says

      You can start survivor’s benefits at 60 (or earlier if you have dependent children). Here’s what the SSA site says: “If a person receives widow’s or widower’s benefits, and will qualify for a retirement benefit that’s more than their survivors benefit, he or she can switch to their own retirement benefit as early as age 62 or as late as age 70. The rules are complicated and vary depending on the situation, so talk to a Social Security representative about the options available.” I recommend the book “Social Security for Dummies” as a good primer to read before you call.

      • lizweston says

        One of the reasons it’s complicated is that survivor’s benefits, like retirement benefits, are reduced the earlier you take them and they’re also subject to the earnings test, so if you continue working your check is reduced $1 for every $2 you make over a certain amount until you reach full retirement age. (The money doesn’t disappear forever; it’s added back to your check at full retirement age.) You could start survivor benefits before at or at your own full retirement age and let your own retirement benefit continue to grow (it maxes out at age 70). You should ask for figures showing your survivor benefit and your own at various ages (62, full retirement age and 70) to help you determine the best strategy.

  3. Each person is different. For some, early benefits are optimal; for others, delayed benefits are better.

    First of all, do not depend on the estimated benefit you can get from Social Security. That estimate assumes (1) that you will request benefits starting the month after you retire and (2) that there will never be any inflation. Instead, free software can be downloaded from http://www.socialsecurity.gov/planners/benefitcalculators.htm (item #4) and installed on a PC or Mac. This software allows you to plug in your own estimate of inflation; it allows you to determine benefits if you retire but defer taking Social Security. This software, which the Social Security Administration updates at least annually to reflect actual inflation and any changes in the law, proved very accurate in my own case.

    I developed a set of Excel spread sheets to plan my own retirement. These allowed me to try different scenarios, including varying the date on which I retired, the date on which I started drawing a monthly pension from a prior employer, the differing dates on which my wife and I would start receiving Social Security benefits (she receiving spousal), variations in future inflation (national, which affects Social Security benefits, and local, which affects what I really need), rate of return on my wife’s and my IRA (to which we rolled over our 401(k) plans), longevity (which is quite long in my family), and even the costs of COBRA extensions of group health insurance from the time of retirement until covered by Medicare.

    The spreadsheets indicated the following scenario would be optimal:
    * I should retire a month before my 62nd birthday, drawing upon my IRA and relying on my wife’s wages for living expenses.
    * I should start receiving a monthly pension from a prior employer 6 months after retiring (31 months before the pension plan’s normal retirement date), accepting the “hit” of a 15.5% reduction in the pension.
    * My wife should retire several months before her 64th birthday.
    * I should start receiving Social Security benefits the month after my wife retires, 14 months before the age when I would receive full benefits.
    * My wife should start receiving Social Security benefits the month after I do, 27 months before the age when she would receive full spousal benefits.

    I indeed followed that plan. Now, 10 years into retirement, we have not yet begun to spend all the interest and dividends on our IRA investments although the spreadsheets assumed that we would be spending some of our principal.

    No, I am NOT a financial advisor. I was never a over-paid corporate executive. I was a software engineer, and my wife was a pre-school teacher.

    • lizweston says

      I’m glad it’s working for you. Those who lack an engineer’s skills may find themselves adrift in the calculations, and I would still advise running the results past a fee-only financial planner with a similar skill set so you can be confident you haven’t missed anything.