When Should You Start Taking Your Social Security Benefits?

Last Updated Mar 30, 2010 9:50 AM EDT

A lot has been written about the straight financial advantages of delaying the start date of your Social Security benefits (for a good article, see Double Your Social Security Benefits, by CBS MoneyWatch writer Lynn Brenner).

This post looks at the qualitative reasons why it's smart to make your Social Security income as large as possible by delaying benefits for as long as you can (but no later than age 70).

There are five really great advantages that Social Security income offers retirees.

  1. You'll receive a monthly income for life, no matter how long you live. Most older workers won't receive traditional pensions which pay a lifetime income, and instead will be relying on 401(k) balances for retirement income. Drawing down these balances such that you don't outlive your money is a serious challenge (see my previous post Make Your Money Last for Life). Maximizing your Social Security income is a good hedge in case you live a lot longer than your life expectancy.
  2. If you're married, Social Security income continues to your spouse after you die, no matter how long he or she lives. Poverty among widows is a serious problem in our country, since often the husband dies first, often around the same time as the retirement savings run out. For the majority of widows, Social Security provides more than 50 percent of their income (see the Women's Institute for a Secure Retirement--WISER--for more information on the challenges facing women).  Men, please pay attention to this issue--I'm sure you don't want your wife to be poverty-stricken after you die.
  3. Your income is increased for inflation each year; most private pensions don't have a cost-of-living adjustment.
  4. Your Social Security benefits are not affected by what happens in the stock market. I recommend that retirees diversify their retirement income. This means that some sources of income, such as Social Security, aren't vulnerable to stock market fluctuations, while other sources of income, such as stock market investments, have the potential for future gains but also have the risk of market volatility.
  5. For many people, Social Security isn't subject to income taxes, or at least, taxes on this income are reduced significantly.

There is no other benefit or financial asset that has this combination of powerful advantages. So for most people, it makes sense to maximize their Social Security income by delaying benefits.

My next post will show you the math behind the reasons for this conclusion and demonstrate how to decide for yourself when to take benefits. It's my intent that this post and the next post give you simple ways to think about the right time to start your Social Security benefits. This insight will then help you decide how long you should work and when you can retire.

In addition, my book Recession-Proof Your Retirement Years explores in more detail the strategy of diversifying your retirement income, including the reasons for delaying Social Security benefits.

Image from iStockphoto contributor jhorrocks

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    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck and Recession-Proof Your Retirement Years.