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Why Wait? When It Comes to Social Security, Patience Can Pay

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July 26, 2017
Social Security: 70 is the New 50
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Some say 70 is the new 50. That’s up for debate, but as far as Social Security is concerned, perhaps it’s fair to say 70 is the new 66.

Huh? Stay with us, because this actually might have some bearing on your retirement plans.

When “Full Retirement” Isn’t Really Full

If you were born between 1943 and 1954, the U.S. Social Security Administration (SSA) calls age 66 your “full retirement age,” meaning that’s when you receive 100% of your benefits. Some say, however, that’s a term that should change, because “full retirement age” doesn’t correspond with full retirement benefits, despite what many might believe.

The fact is, waiting a few more years to start collecting benefits can really pay off, if you can find a way. This chart from the SSA makes things very clear. If you wait until age 70 to start collecting, you get 132% of the monthly benefit that would have gone into effect at age 66. Basically, your benefits go up by eight basis points for every year you wait to collect them between ages 66 and 70. After that, the increase ends, meaning your true full retirement age is better described as 70 rather than 66.

So why does the SSA call age 66 the full retirement age when it’s actually somewhat misleading? It’s a bit of a head-scratcher.

“The SSA is actively exploring updating its nomenclature because it inadvertently signals to people that this is where you should be doing it—at 66,” said Joel Eskovitz, senior policy advisor, AARP Public Policy Institute. “The thought is, if you can go past 66, whether it’s because you’re still working or if you can start cashing in your 401(k), you don’t have to access Social Security benefits and you can get a better bang for your buck the longer you wait.”

As the chart shows, every year you can wait will add to your check. People who wait until age 67 to begin collecting Social Security receive 108% of the monthly benefit they would have received at “full retirement age,” while people who wait until 70 get 132%.

Number of People Collecting Early Still High, But Falling

Despite the obvious benefits of waiting, many Americans still start collecting Social Security as soon as they’re eligible, at age 62. That’s not necessarily a good idea, because there’s a high penalty for starting the benefits early. Although the percentage has gone down over the last few decades, more than one-third of Americans still begin collecting Social Security at age 62, according to this 2015 study by the Center for Retirement Research at Boston College.

The same study shows less than 5% of retirees waiting until age 70 to begin collecting, meaning few take advantage of the extra benefits available for those with the patience to put off their benefits. 

Why don’t people wait?

  • Questions about Social Security. Many believe the hype about Social Security's impending insolvency. Although it's true that Social Security is strained, and even the SSA acknowledges that unless current rules are tweaked, recipients could start seeing reduced benefits by 2034, the system is not projected to become insolvent. Still, many believe that once they hit age 62, every month in which they aren't collecting Social Security is money lost. 
  • Not understanding the benefit of waiting. As Eskovitz noted, the SSA’s own nomenclature might be confusing some people, who think full retirement age means full benefits kick in at age 66, when age 70 actually puts far more money into your checks. More clarity from the SSA and better education for those nearing retirement might be necessary.
  • Thinking one needs to work until 70. Although there are rare people who want to keep going to the office as long as possible, there’s also a big group of Americans who’d rather call it quits by their mid-60s, sometimes because they don’t want to delay retirement or because their health makes full-time work unfeasible. So they retire at 62 or 64 and start collecting Social Security. Just because you stop working, however, doesn’t necessarily mean you have to rely on a Social Security check. Consider other accounts, like 401(k)s or other savings you might be able to live off of between retirement and age 70, because that could allow you to take full advantage of your Social Security.
  • Sickness, lack of finances, or inability to work. Obviously, waiting until 70 to collect Social Security isn’t the answer for everyone. Many people simply lack other resources or can’t go on working after 62 or 66. 

At this point, the SSA doesn’t even have a full commissioner (it’s relied on an “acting” commissioner for several years). So the SSA may not be making major changes in how it defines full retirement age anytime soon. Instead, it’s up to you to understand how the system works. Having patience can mean bigger checks once you hit your 80s and older, a time when many people have spent down most of their other savings and the size of that Social Security check becomes more important than ever.

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