By

Jack Otter /

CBS News/ April 23, 2012, 12:34 PM

When should you take Social Security?

(MoneyWatch) When should you take Social Security? It's a question I get all the time, from in-laws, friends of my parents, and MoneyWatch readers. For most people, the answer is straightforward, if not popular: As late as you can, the closer to age 70 the better.

The reason is simple: The longer you wait, the higher the payout. Granted, this advice is useless if you can't afford to wait. But if you have any flexibility at all, it's important to consider the numbers. Last year, while doing research for my book, I was struck by the fact that, as interest rates fell, the "return" you get by waiting looks better and better. Over the weekend my former colleague Jack Hough, at SmartMoney magazine, pointed out that the case for waiting has gotten even stronger since then, as interest rates have continued to fall.

The easiest way to understand the issue is to look at the numbers:

If you are making $75,000 and you retire this year at age 62, your annual Social Security payout would be about $16,300 (that number will vary depending on your earnings over your lifetime). If you wait until your full retirement age of 66, your Social Security income in 2016 will be around $22,600. If you can hold out until age 70, expect to bring in more than $30,000.

Some people prefer a bird in hand, and they argue that you're better off taking the checks at age 62 and investing the money. Here's the problem: You would have to earn around 8 percent a year on your Social Security checks to match that payout. There's no investment in the world that pays 8 percent a year without a lot of risk. Despite all the fear over Social Security funding levels, the program has a U.S. government guarantee behind it, and even if you're skeptical of the Treasury, it's far safer than junk bonds that yield 8 percent.

Holding out for bigger checks becomes more valuable the longer you live. Using the numbers above, if you live to age 90 you'll get $170,000 more in Social Security by waiting until age 70 to take benefits. Of course it's great to have a bigger paycheck; it's also a nice form of inflation protection. The bigger your checks, the higher the dollar amount of any cost-of-living adjustments. Unless you're in ill health (and therefore may not live long enough to benefit) or simply can't afford not to take Social Security early, it's a no brainer.

The broader lesson here is what led to the name of my book: Worth It...Not Worth It: Simple & Profitable Answers to Life's Tough Financial Questions. While managing money is never easy, the answers to many of the questions we face are fairly simple, once you see the numbers. The same is true for life insurance, investing, and even whether to use your credit or debit card.

© 2012 CBS Interactive Inc. All Rights Reserved.

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dodgester3 says:
While I hear you folks about the having fun while you are healthy, with proper financial planning and a bit of luck of not having too much of a set back during employment years (lay offs, significant disabilities, costly health issues, and so on), then you can use your personally saved up funds to enjoy the time while delaying your SSA benefits another 3 to 4 years.

While in the past, they used the 3 legged stool for retirement savings plan (one being the pension by corporation, one being the SSA benefits, and one being personal savings), that analysis is now broke.

We all know what has happened with corporate pensions, they went by way of the PBGC with the benefits instantly cut in half with new people having to use 401(k) or similar plans. As such, that leg is completely sawed off for current employees.

As for the SSA benefits leg, thats looking to be chopped in half (The SSA benefits says only a 27% drop via the do-nothing route, but knowing human behavior, people in general don't really realize how bad things are until they are in the midst of it, thus why I estimate more like 50% drop come the early 2040's).

Now with 1.5 legs lost of the 3 legged stool, the analysis has now become more like a bean bag chair. The more dollars you put into your own bean bag chair (retirement funds, rather through employment or on your own with IRA plans), the more comfortable you will be. As such, build up your own retirement funds with the retirement type accounts.

Once you realize this and build up your own retirement funds, you become less dependent on the SSA benefits, thus now you can afford to delay it another 3 or 4 years (in my case, it's 3 years of delay with my normal retirement age being 67). As such, even if the funds has been cut back by 50% under the do nothing route of fixing the current issues with the FICA situation, when that SSA benefits does kick in, it will be the icing on the cake.

For me, my income has almost always been in the poverty range, but yet, my savings has been significantly higher than at least 70% of those in my own age group, so following this route is very doable, if you can get yourself and your household to be disciplined enough to do it.
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davcor2 says:
A close friend of mine is an account. What he came up with is fairly simple. If wait until the age of 70 to take retirement income, you must live past the age of 86. Up until then, you will not make any more money then if you took full retirement at age 66. Again, it's a crap shoot. If you're confident you can live well beyond 86, it might be worth it.
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AceJorg says:
I receive $500 less a month by taking SS at 62 instead of 65. 75 is my break even point. I wanted the $ while I know I am healthy. I do hope I see past 75 but it is a throw of the dice.
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computerflyer says:
All these "wait" recommendations assume you will live long and your only goal is paying daily bills. In my case I retired at 65 1/2 (66 full age) and the break-even point for social security total income now versus waiting to 66 is attaining 83 years of age. Waiting to 70? With my IRA income this is a decent bet because from family history I'll die in my late 70's. Why should I wait, then? To work longer or have a reduced standard of living for a few years?
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Dan_Kap says:
Funny, but I just called Social Security (SS) yesterday. I asked them something that itsmemick commented on above. Simple question, but not an easy answer. I reach my full benefit at 66. If I hold off until age 70, given my monthly amount at 66 vs 70, exactly how many years would it take for me to break even? The SS lady was very nice, but said I'd "just need to put a pencil to it." Does anyone know of a formula I could use, given my benefit at 66 and my benefit at 70? The SS lady was able to give me both figures. My situation is simple: single, and not working any longer at 66.

My girlfriend brought up a good point in favor of not waiting the extra time (66 at full benefit vs waiting until 70). I've never read her argument anywhere, but it's a valid one. She said why not collect it when you're healthy at 66 and can fully enjoy it, than wait until you're 70 and perhaps not able to enjoy it as much. I should mention that I'm fortunate enough to be able to afford to put off collecting until I'm 70.

Thanks for any opinions!

Dan Kap,
Whittier, CA
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BryanM87 replies:
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Hey Dan!

I have an answer for you to calculate your "break even point". It is not a simple formula but here it goes:

Lets assume (made-up #) that you will earn $1,000 per year if you take SS at age 66. If you take it at age 70 lets assume you will earn $1,500 pre year. (insert your own numbers)

You must multiply your potential earnings from 66-70 by the number of years (4 years) (ex. $1,000x4=4,000).

Then for each year 70+ you would take your potential earnings at age 70 and subtract what you WOULD be receiving if you took SS at age 66. (1,500-1,000= 500.)

Since in this example you be earning 500 more per year it would take you 8 years (500x8=4,000) to "break even".

I hope this helps! ( Remember to insert your own $$$ amounts for the earnings at 66 and earnings at 70!)
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RetiredArmy_Nurse says:
One thing I can't get the answers on is how to handle the SS cap on yearly payouts for a family. If I wait until 70 my SS entitlement is $2,750 per month. I think my spouse is entitled to half that amount at $1,375. This would total $4,125 per month, but according to my SS statment we can only get $3,626 as a family and this cap never goes up. So we are now thinking of taking SS at ages 66 & 64 to net a bit over $3,000 per month allowing us to get COLAs for around 10 years until we hit the cap. Does the author have any good advice in this regard? I have not been able to find anyone with good knowledge on this.
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RetiredArmy_Nurse says:
One thing I can't get the answers on is how to handle the SS cap on yearly payouts for a family. If I wait until 70 my SS entitlement is $2,750 per month. I think my spouse is entitled to half that amount at $1,375. This would total $4,125 per month, but according to my SS statment we can only get $3,626 as a family and this cap never goes up. So we are now thinking of taking SS at ages 66 & 64 to net a bit over $3,000 per month allowing us to get COLAs for around 10 years until we hit the cap. Does the author have any good advice in this regard? I have not been able to find anyone with good knowledge on this.
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belovedroofer says:
The TRUTH is: making a well informed decision about timing your SS election is EXTREMELY complicated. Even the well-read who use the software available thru various financial services will be daunted by the complexity of the myriad of issues. There is no cut and dried answer, nor is their any "general guidelines" that can be thrown out in a short news article.
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chromebuster says:
The best compromise is to take social security at age 66 if one can afford to do so. While everybody would like to live into their ninties or beyond, the reality is a lot of folks kick the bucket in their late sixties and seventies. Some 85 year old neighbors recently saw a financial planner who told them that their life expectancy was 12 years. They both got a laugh out of that since both could check out any day.
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Bodhi214 says:
tAnd What if you have worked for 13 years and you end up unforunately becoming disabled to the point that you cannot work, until this recent year once you become eligible to recieve ssi or ssdi you got a statement that statement would tell you what you would earn if you had to (become)go fully disabled as of that day, as well as at that pay range what you would get at a certain age of retirement, are you saying that these statements provide false numbers because Ive been forced into that predicament I was terminated after 13 years because i started and worked there the whole time with mental illness which was handled with medicine until the last several years when i broke my back and was diagnosed with narcolepsy with cataplexy. So unfortunately even though i was on Intermittent FMLA and under the care of a total of three doctors on a boat load of medication I was harassed made fun of and eventually terminated and denied unemployement stating I was unable to perform my job duties. Now I'm in the situation where i have to have more mental therapy and behavioral counseling because the harassment i received broke me down and got me hospitalized. There is no cure for schizophrenia and narcolepsy with cataplexy with series of epilepsy. That given the route i have to go through for social security is a long one, however i have all the diagnoses and what not to get it and until i get medicaid with my disability i have no way to move on getting therapy and working to hopefully come off of it one day if possible or something. I'm not completely worried as i continue to age as I'll have a large trust fund comming eventually. So whats your advice to someone who has diabilities ss disibility insurance is the only way one really has to go and while its not a tremendous amount what the statement i last recieved stated was the amount i would get was the equivalent amount of what i was making a month anyways and that was before the past two year increases for inflation. My question is down the road if i cannot become rehabilitated wel enough to hold a job, which i tried getting a job after i was terminated an emotional wreck but due to my conditions and the medications i have to take the all said id be a safety hazard. Ive almost died falling asleep at the wheel three times which in one permenantly damaged my spinal cord fracturing it in multiple areas. So I dont have much of a choice my family had to convince me to file the june before the past june because i didnt want to file for it because i thought everyone would deem me as a loser when actuality i just need help getting help so maybe i can come off of it, however what happens if I don't make a well enough recovery, and my back continues getting worse and my narcolepsy doesnt lessen as it doesnt respond to medications, down the road when my sister and I get our trusts which only interest is allowed to be taken from until we reach the age of 55 only then can we touch the principals. Does something like that get me kicked off of disabiltiy even if i'm still disabled. I say this as my mother just passed at 56 years old from early onset alzheimers. So unfortunately even though someone like myself wouldve loved to feel like a normal person and not feel looked down on and despised by people outside of my family. Unfortunately social security has to be used for disability and I was kicked out of High school for attempting to kill myself letters weapon and all. I was hospitalized at 17 when released i tried hard and i held a job until two months before my 31 bday, as well as went to college until i was 27 when my conditions spiraled out of control and i could not, if it hadnt been for me fighting as hard as i could to work those years I wouldnt of qualified for SSDI and I only wouldve gotten the small 600 and some dollar SSI check that people get who have never paid i scent into SS. Could you answer what I should do or if i recieve my part of the family trust here if that will kick me off despite still being disabled? You only wrote this article on retiring that is why i'm asking about what someone who is forced this is the only way i have at the moment especially to get the rest of the treatment for my mental health. Can you answer me any of that
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Bestoink replies:
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With all your mind and body problems you are going to be a BIG LEACH on our society, sucking our money. Nature has a remedy for those among a specie who are so deranged and sick as youself: premature death. Our society is too nice and wimpy to allow nature to take its course, however, as happens in the third world, so we must all pay for years and years for your crazy a$$.I would say euthanasia.
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