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Social Security Retirement: Why Delayed Retirement Doesn't Always Maximize Your Benefits



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By guest blogger, Frank Cardenas, MPA

Often times when clients talk with their financial advisors about when they should draw their Social Security benefits it leads to- if you don’t need the money now, wait and accrue the delayed credits. The strategy to delay in order to maximize your benefit amount is very lucrative considering you are growing your benefit by 8% each year after reaching Full Retirement Age (66) until age (70). However, this strategy is as much a chess game as it is a talk with your doctor. It only makes sense to delay retirement if you will live long enough to surpass the age of your break-even point, and beyond that to have those years you delayed pay you back with interest. Your break-even point would be the age you would have to live in order to start receiving “your return on investment.” 

When individuals ask what is the best strategy for a family to maximize their Social Security, the conversation falls primarily to their health. With a conundrum of filing strategies, it is essential to look at any indicators that can help map out the most accurate approach. We must not be naïve to think that Social Security Actuaries are not factoring in the high-income families that choose to wait for benefits but do not live long enough to actually receive them. Time and again, I hear from high-income families that they have no financial need for the benefit but wish to get in the know about possible claiming strategies. The truth is that all families must look at their health in determining how to maximize their Social Security.

It is easy to think that simply without having a financial need for benefits, then the best option would be to wait and gain more on their investment- and in some cases this is true. Whether there is a financial need to take your Social Security at Full Retirement Age (Age 66 = 100%) or deciding to wait to age 70 (132%), in order to take advantage of delayed retirement credits, we have to live long enough to justify that decision.

Chart 1

Let’s put it into perspective:

On average, a high-income individual’s benefits, if they chose to wait until their maximum year of eligible Social Security benefits, would be sacrificing about $125,000 in a 48-month time frame (age 66-70). The average break-even point for an individual to recoup those benefits in order to gain that extra 32% in benefits is 12 years. Meaning, that, on average, if an individual chooses to not draw their benefits at their Full Retirement age of 66 and waits to draw at 70, then they must live until at least age 82 for it to have been a sensible decision to have delayed. Thus, making the decision on when to draw benefits a game of betting against yourself. Now, this isn’t to say that if you live to age 82 then you should start celebrating your hypothetical win against the Social Security Actuary, but merely that you have reached that crucial break-even point on those $125,000 of benefits that you forwent between the ages of 66-70. You can really start to celebrate after you reach that age 83, 84, 85, etc. milestones. Every individual’s strategy, break-even point, and possible filing options are different, but health should be a common denominator on your overall Social Security Plan.

Ask yourself these questions:

  1. Do I have a Financial Need or Quality of Life Need for my Social Security Benefits?
  2. What is my current state of health and what is my approximate life expectancy?
  3. What is my break-even point on my benefits and what are all my strategies?
  4. Do I have enough of (1) & (2) to justify me waiting for my benefits?

Chart 2

Source:  Social Security Administration Data 

Frank Cardenas, MPA, is the owner of a federal benefit’s consulting firm that assists financial advisors, accountants, benefit coordinators, individuals and families navigate and maximize their Social Security & Medicare benefits.