EagleTribune.com, North Andover, MA

May 26, 2013

Column: When should singles take Social Security?

Financially Speaking
John Spoto

---- — The decision of when to start collecting Social Security benefits can have serious and lasting consequences for the financial security of individuals and their spouses. Despite the fact that a wrong decision as to when and how to take Social Security can cost retirees tens of thousands of dollars or more, most begin taking benefits at the earliest opportunity without evaluating their options. Simply put, retirees should choose the Social Security strategy that maximizes their lifetime benefits.

The decision criteria are different for single people than they are for married couples or divorced spouses. In this article we’ll focus on Social Security benefit considerations for singles.

Workers who qualify for Social Security retirement benefits can elect to receive them at age 62, wait until full retirement age (between ages 66 and 67 depending upon year of birth), or wait until age 70. The longer the delay, the higher the monthly benefit will be. Specifically, the benefit will increase by roughly 7 percent per year from age 62 to full retirement age and then by about 8 percent per year until age 70. This means that waiting until age 66 will result in a benefit 33 percent higher than if claimed at age 62, and delaying until 70 will yield a benefit 76 percent higher than if claimed at age 62. After 70, there is no additional incentive to delaying.

There is no universal “best’ choice as to when an individual should start receiving benefits. Personal, financial and health factors may dictate when one stops working and begins collecting. Behavioral biases such as a retiree’s assessment of the viability of the Social Security program may also influence the decision whether to collect early or delay payments. For those who question whether the program will be able to pay future benefits as promised, delaying may constitute a risk.

Behavioral biases aside, however, from a strictly dollars and cents perspective, when circumstances warrant, delaying and therefore increasing the monthly benefit amount can substantially enhance a person’s retirement security. Let’s discuss the two key considerations that should factor into an individual’s decision about when to start collecting.

Availability of other assets or income: Taking benefits at age 62 may be the only option if you can no longer work and have minimal financial assets or income and need the money to pay living expenses. In this situation it is usually preferable to start collecting earlier rather than spending down a significant portion of your savings, which may be necessary for dealing with unexpected expenses that may arise. If you don’t need Social Security to make ends meet however, delaying can make a lot of sense. Where else can you effectively get a 7 percent to 8 percent raise each year simply by waiting?

Expected lifespan: If you have sufficient assets to postpone taking benefits without depleting your savings, then the decision boils down to whether you come out ahead by starting early with smaller payments or waiting for larger ones you won’t collect for as long. Social Security is an “actuarially fair” system, meaning that if a person lives to an average life expectancy, it doesn’t matter when they start collecting benefits, because they will receive the same benefits (in today’s dollars) whether they start at age 62, 66, or 70. So the question then becomes to what age do you expect to live and will you come out ahead if you delay. If you are in good health and expect to beat the average life expectancy, delaying until age 66 or even age 70 is probably the sensible decision. Many of us are likely to spend 30 years or more in retirement, so getting a permanent increase in benefits by waiting will likely provide additional security and peace of mind, especially later in retirement.

The decision of when to collect is relatively straightforward for a single person. However, the complexity increases for married couples and divorced spouses when you introduce additional variables, including spousal and survivor benefits that need to be considered. Our next couple of articles will address those topics.

John Spoto is the founder of Sentry Financial Planning in Andover and Danvers. For more information, call 978-475-2533 or visit www.sentryfinancialplanning.com.

This article is for general information purposes only and is not intended to provide specific advice on individual financial, tax, or legal matters. Please consult the appropriate professional concerning your specific situation before making any decisions.