Social Security Retirement Planning

“I’m just curious. How many people think we should delay Social Security as long as possible? A few folks. You’ve seen my talk before? How many think to take it as early as possible. A few folks. Okay.

And actually, the answer… there is not a single answer here. It is a personal decision like we heard earlier from Nick. But I just want to give you some insights into this. First of all, this is a chart which just shows the monthly benefits and this is just an example. We are looking at someone who is earning $75,000 in 2009 and had always been making this amount. This is for a single person and if you’re married, if both of you work, each of you will get a benefit that comes from these kinds of charts and then your household income is just the sum of the two.

If one of you didn’t work or works sporadically then there is a special spouse’s benefit, which I will get to in a second. But just look at this chart. Say you are born in 1950, if you retire at 62, the monthly benefit is $1,470. If you retire at 65 its $1,850. And this person their full retirement as Nick was talking earlier is 66 and so their monthly benefit would be $1,980. And finally if you wait till age 70 the monthly benefit is $2,660. So you can see that there is a pretty dramatic increase in the amount of your monthly benefit if you delay your retirement benefits.

This is the same chart but for a married worker where the spouse didn’t work, and this is just a sum of the workers benefit and the special spouses benefit. But it’s the same pattern, you know, if you delay your benefits then your benefits go up. And so I like this chart. You know, when you put up charts that show percent increases it’s hard to relate to a percent, but here monthly income we can relate to a dollar amount of monthly income. It makes it easier for us to decide what’s the right thing to do.

This next chart, though, gets at the heart of the strategy that I’ve been talking about, and it’s kind of a complicated chart, but once I explain it, it’s not too bad. So, what we’re looking at is the first column here, is what would happen if you started benefits at age 62, which is the earliest possible age. And this is for someone who, again, made $75,000 per year in 2009 and who was born in 1950. So, their initial income per year would be $17,640. If they lived to age 70 and then died, they would have 8 years of getting the $17,640. Their lifetime income would be $141,120.

If they had lived till age 80 and then died then they would have 18 years of getting that amount of $17,640. Now their lifetime income is $317,520. If they lived until 90 and died it would be $493,920. If you instead waited until age 66, your full retirement age, then your annual income is that first row, $23,760. If you live until age 70 and then die, you will only have 4 years of that, $95,040, and then so on down the line.

If you decided to wait until age 70 to start your benefits, now it’s grown to $31,920. Now if you would have waited until age 70 and then you died at age 70, bad move. Okay? Because then you’re going to get nothing. But if you had waited until age 70 and lived until 80 you’d have 10 years worth of that amount, $319,000. And then if you lived to age 90 you would have $638,000.

So what you do is you think, “Well, the lifetime income that I am getting, the sum of all this money from Social Security, where is it biggest?” Well, if you died at age 70 your good move would have been to take it as early as possible. If you would have died at age 80 the best move would be to take it at age 66, and if you died at 90 you would be waiting till age 70.

So all this is showing is that the longer you live, the better off you are by delaying your retirement and your Social Security benefits. Now, remember earlier we were talking about life expectancies, and we saw that the average life expectancy got you into your early to mid 80s. If you’re taking care of your health and you’re adding those 5 or 7 years of healthy life like I talked about, you might get to your late 80s early 90s. And so these are the kinds of things you ought to consider when you are thinking about when you should start your Social Security benefits.

What I have done is tried to give you a way of thinking about this so that you can come to an informed decision rather than just hearing what your sister did or your brother did.”

Thanks to RestofLife.com

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