Today we’re going to continue sharing thoughts from the book How to Retire by Christine Benz.
It’s a great book which I highly recommend. And as with the last article, I’ll be giving away a copy of the book at the end of this post.
We’ve already posted on this book as follows:
- How to Retire
- Planning for Retirement
- Strong Relationships Make a Successful Retirement
- Activities, Meaning, and Mental Health in Retirement
You may want to check these out if you missed them.
All About Social Security
Today we’re covering chapter 4 where Christine interviews Mary Beth Franklin, who is supposedly “one of the United States’ pre-eminent experts on the ins and outs of Social Security.”
Obviously you can’t have a retirement book that attempts to be somewhat comprehensive without a discussion of Social Security (SS). I get that.
But I feel like we’ve beaten this horse to death with the same analysis and the same conclusions year after year after year with the main takeaways being:
- In order to fully maximize SS for certain, you need to know when you’re going to die (and if married, when your spouse is going to die as well).
- Since none of us know that, we are all simply making guesses at how long we will live, what will happen in those years, etc. In other words, there are a lot of unknown variables so let’s just recognize up front that we likely won’t maximize our SS benefits…and that’s ok.
- SS, like any other personal finance issue, is personal. What may work for you might not work for me and vice versa.
- So let’s move past being adamant about X or Y being the “best/only/smartest” way to take SS and just focus on the few things we should consider as part of our decision-making process.
I think those issues have been pointed out enough times we could all probably recite them from memory. However, I’ll include those just in case someone has missed them, but in this post I’m mostly going to cover the items they discuss that are critical, reinforce what I’ve already said, or add some sort of new thought or perspective to consider.
The Standard Response
Here’s the information most of us have seen already:
Deciding when and how to claim Social Security benefits is one of the most important decisions that retirees will ever make. In an era when pensions are the exception rather than the rule, Social Security represents one of the few sources of guaranteed income that lasts a lifetime, no matter how long you live. Plus, unlike many private pensions, Social Security benefits are adjusted for inflation to help retirees maintain their buying power over time.
You can claim benefits as early as 62, which for some people might make sense, as long as they are aware that their benefits are permanently reduced if they claim before their full retirement age. In addition, people who claim early and who continue to work will get this permanent haircut for claiming early, and may also lose some or all of their benefits, at least temporarily, if they make too much money, which is defined as about $22,000 a year in 2024.
If you wait until your full retirement age, which could be anywhere between 66 and 67, depending on when you were born, you get your full benefits that you have worked so hard for. But if you’re able and willing to wait a while, you can earn a spectacular 8% extra per year for every year you postpone claiming beyond your full retirement age, up until age 70. For example, if you retire at age 67, and you wait three years to claim, at age 70 you’re getting an extra 24% on top of your full benefit. Now you’ve got this bigger benefit base. And each year, when there’s a cost-of-living adjustment, it’s applied to a bigger base.
You’re going to get more Social Security benefits over your lifetime if you delay and you live until at least average life expectancy. If you live longer, delaying is a really good decision. If you don’t live to average life expectancy, maybe it wasn’t the best decision for you.
The summary is:
- For most people, wait until you are at least full retirement age to collect benefits.
- If you can, wait even longer to 70.
- That said, if you die early it’s not the best deal. Hahaha.
Seriously, there may be reasons to claim early…which is what they cover next…
Three Times to Claim Early
Mary Beth adds to what she said above with the following:
It makes sense to claim earlier in three instances. First, if you’re in poor health and not likely to make it to average life expectancy, and you’re single, it makes sense.
Second, if you need the money. Think of how many older workers lost their jobs during the Covid pandemic. They were forced to retire sooner than they thought, and maybe that retirement income plan isn’t quite what they had pictured. If you need the money, go ahead and take it.
Third, filing early might make sense for some married couples with different earnings histories, one higher, one lower.
For example, one spouse, preferably the one with the bigger benefit, might decide to delay until 70. In that instance, the other spouse, who might have been the lower lifetime earner, may want to go ahead and claim benefits early at 62, even though her retirement benefits would be permanently reduced. That’s because its likely that her survivor benefit is ultimately going to be bigger than her own benefit. If the higher earner waits until age 70 to claim the biggest retirement benefit possible, it will likely translate into the biggest survivor benefit possible for the surviving spouse if the higher earner dies first.
It’s important to realize that retirement benefits and survivor benefits represent two different pots of money. Even if the lower earner claims her own retirement benefit early, and that benefit is permanently reduced, she still could get full survivor benefits if she is at full retirement age when she claims a survivor benefit. Survivor benefits are worth 100% of what her late spouse was collecting when he died. So, there is this possibility for married couples to have one delay and the other one claim early, bringing some cash flow into the household. If the early filer is ultimately the surviving spouse, she is still likely to get a survivor benefit that’s maximized based on her late husband’s benefit.
So yes, there are three groups of people who may want to claim early. You’re sick, you need the money, or maybe you’re the lower-earning spouse in a couple. If you’re sick and married, and you are the major breadwinner, it does not necessarily make sense to claim early. Because if the bigger earner is diagnosed with a terminal illness and claims at 62, they’ll get 70% to 75% of their full retirement age benefit because they’re claiming early. When they die, the surviving spouse’s survivor benefit is based on that reduced retirement benefit.
Is your head spinning?
How many times was “if” used above (or something talking about a potential but not known situation)? A hundred? More?
If this, then that. But if that, then something else.
The problem is that we don’t know the answers to most of the ifs, so we only know if we made a good/the best decision after the fact (and after it’s too late to go back and make another decision).
Here’s what I recommend:
- First decide what you want to use Social Security for. Is it to enjoy, for vital, needed income, as an “insurance policy” for the spouse left behind, etc.?
- Once you know that, then you can make a decision that works well for what you want to accomplish…not some guess just so you can “maximize” your benefits. Maximizing your SS is a fool’s game and will likely drive you crazy.
And just to take all the pressure off yourself if you’re fretting about what’s the best thing to do, here’s this comment from Mary Beth:
Assuming you live until average life expectancy, it’s actuarially the same no matter when you claim.
So there you have it. On average, you’ll get the same amount no matter what you decide.
At least that’s how it was at one point. I’m not sure the system updates itself regularly for things like longer life expectancies and so on.
And, of course, any particular situation will differ from average, but knowing that the odds are we will receive the same amount no matter what we do gives us some reassurance and gets us out of endless analysis paralysis.
And before we move on let me note the key post about the difference between SS retirement benefits and survivor benefits. These are two different things and you need to consider both as you plan what to take and when.
Claim Early and Invest It
Next Christine asks about a strategy I’ve heard discussed often:
One thing I sometimes hear from avid investors is that they can out-earn the increased payout from delaying Social Security if they make an early Social Security claim and then invest those funds in the market. What do you say to that?
FYI, I covered this idea in A Case for Claiming Social Security Early in case you’d like to dive deeper into it.
Here’s Mary Beth’s response:
They might, depending on the year. You might get a 30% return, or you might lose 30%. It’s only fair to compare the concept of delaying Social Security to investing in a risk-free investment like a CD (certificate of deposit) or a bank account.
Over the past ten years, you were getting 0% on that bank account, and the government’s offering you 8% a year for delaying. Now interest rates are creeping up; as were having this conversation in 2023, you could get a CD for 4-5% or even 5%. Given that, some people might be more comfortable taking Social Security and putting the money in a CD for 5%. Yes, it’s less than the 8% you pick up by delaying. But you’ve got that bird in hand.
Putting the money in the stock market, on the other hand, is very iffy. If you’re feeling lucky, that’s great. You might really increase your returns, but you have to be prepared to lose it as well. For many Americans, particularly for those who don’t have pensions, this is the only source of lifetime income they have, and it’s cost-of-living adjusted. Even if you’re buying an annuity, in most cases that is not cost-of-living adjusted. There’s a whole lot to be said for guaranteed, cost-of-living adjusted income for the rest of your life, no matter how long you live.
Personally, I’m way past the point of trying to maximize everything in my financial life.
If I wanted to maximize it, I would have not given the money to SS in the first place. Hahaha.
Did I even “give” the money? Or was it “taken”? lol
Anyway, we’ll be waiting at least until full retirement age to claim SS — maybe waiting all the way to 70. Time will tell.
I do like the cost of living adjustments as well as guaranteed 8% returns, so we’ll likely stick with those. I’m not going to claim early and then hope the market outperforms what I’d get otherwise. That seems like rolling the dice, something I don’t like to do with our money.
Besides, we’re looking at it more as an insurance policy — to be a backup of a backup plan…not the main plan.
Trying to Calculate Break Even
Finally, here’s one final comment from Mary Beth:
The Social Security Administration used to include a breakeven analysis calculator on their website. Researchers found that when people used this calculator they were more likely to claim early, thinking, “I’ll never live that long. I’m going to grab it while I can.” Social Security no longer has that tool on their website because they felt it was detrimental.
Hahaha. Americans are so strange when it comes to money. lol.
The government tried to help them out and it drove them into a panic.
Is anyone surprised? Ha!
Final Points
Christine ends this chapter with a few final points:
Delaying filing for Social Security is a great way to enlarge lifetime income. It can be particularly valuable for people who think they will have a longer-than-average life or who have a younger spouse who will benefit from that larger benefit over their own lifetimes.
I think my wife will easily outlive the averages…not sure I will or not. But she eats so well, exercises, etc. that I’d be shocked if she doesn’t make it to 90.
Yet another reason for us to delay.
There are situations when filing earlier may make sense, though — if you need the money, of course, or if you’re in ill health and don’t expect to live to your normal life expectancy (both noted above.)
This will be some people, for sure. Though many who don’t expect to live to normal life expectancy will actually live past it.
The financial health of the Social Security system may necessitate changes to the program down the line — for example, means testing or full taxation of Social Security benefits. Such changes are unlikely to affect today’s pre-retirees and retirees, however.
It’s a mess and congress likely won’t step in until there’s no other choice.
We’re so close to the finish line that I doubt our benefits will be affected, but if they are I’m sure we’ll survive. Hahaha.
If you want more thoughts on taking SS, here are some posts I’ve written:
- Why Taking Social Security Early Might Be the Best Option
- A Case for Claiming Social Security Early
- A Deep-Dive Analysis of When to Take Social Security
As you can probably tell, this wasn’t my favorite chapter. But it’s a necessary one and I’m glad they included it in the book.
That’s it for this time.
To read the next post in this series, see Everything You Want to Know About Retirement Spending.
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As I said above, I’m giving away a copy of How to Retire on every post I do about the book. Here’s how to you can enter:
- Leave a comment below telling me what you liked best about this post, what you think you can use, or something you learned from it. Basically just share anything meaningful related to the content above (note: “please enter me to win” and similar comments will not be considered out of pure weakness! At least put a bit of effort into it!) This should be fun!
- Be sure to leave your email address when you leave the comment so I will know how to reach you if you win (the email address will not be visible to anyone other than me).
- The winners will be selected by me at random a few days after this post goes live. I’ll announce who wins in my own comment.
- I’ll email the winner, get their address, and send them a book from Amazon.
As with most giveaways, there are rules. Here they are.
Good luck!!!!
I found good information but my situation is my spouse and I are same age, and pretty much earn the same. We plan to take our SS when we reach full retirement age for me that’s this July for him January 2027. We think waiting for the additional 8 to 24 percent does not make since. Yes we would get more monthly but taking at our FRA we will have payments that we already received. I don’t think the additional percentage will out pace taking at our FRA plus once one dies it’s gone you could live less than a year after waiting.
Social Security is “the big mystery” impacting everyone! The article and references to the book sum it up perfectly. It’s the “if” factor everyone must work through on their own, or with a financial advisor.
Getting SS on reasonable financial footing is another poster child issue alongside healthcare and deficit spending that many or most of our elected US politicians run from; while they run towards campaign donor profits. Did we not elect them to work for us? (yes, I know, sadly, – ha-ha)
Doing nothing and “not touching SS” is not being pro-SS, it’s watching the most important thing the gov’t does for the people crumble. If you agree it’s of critical importance for generations to come – write your representatives at least once or twice a year and let them know their jobs depend on it. They are not nearly as dumb as they appear.
The “fix” to Social Security is to remove the wage cap!
Best part was we cant know anything for sure and either early or delaying, we more than likely will receive the same benefit. I will delay to age 70 as my wife is 7 yrs younger.
I like the real life scenarios in this article including the cases for taking social security early. Like you, social security is my backup, backup plan. I grew up with the world telling me that it won’t exist when I am old enough to retire, so I started building a retirement account at my first full-time job. Here I am, staring 62 in the face, much closer than I would like. Ha ha! Thanks for the book review!
Thanks for this post. I agree with you that most of us in this community are well aware of the factors associated with the decision on when to take SS, but this was a good review. I plan on claiming at 70 and my wife (only 8 months older than me) plans on claiming at 67. I earned a bit more than her and I fully expect her to outlast me.
My husband had a serious skin cancer event when he was about 66, and his benefit was lower than mine so he began taking SS at his full retirement age. I have now started taking SS at age 70. We will see how this works out. We consider SS as insurance and also have a net worth just under $7M and no debt.
This was a good summary of the various factors to consider regarding when to take SS. Your recommendation is sound and concise: Decide what you want to use SS for and then decide what works best to achieve that use case.
For me, my going in plan is to wait until at least 67 but I will re-evaluate as I get closer to that age and/or if I experience any major life changes (e.g. health issue). I’ve plugged in my SS estimates for ages 62, 67, & 70 into retirement calculators to see the impact. Of course, those calculators also require a guesstimate of how long I will live. As for now, I don’t anticipate needing SS at 62 so I currently plan to wait.
Social Security is a personal decision, there is no right/wrong answer.
Sometimes, the decision is made for you. My GF has an incurable health issue. At age 60, she applied and was approved for SSDI. She is receiving full retirement benefits now.
When I look at SS, like many on this forum, the dollars are a “bonus”. My retirement nest egg is sufficient to sustain retirement until I die.
My breakeven between early and late is age 88(26 years away). So much could happen to SS between now and then and it feels like there have been predictions that the whole thing was going bankrupt for the past 40+ years.
At the end of the day, for me, it “feels” similar to what happened to so many of my friends who worked for GM and Delphi. For the longest time, they expected to retire with a great pension…and then…it all disappeared.
Please enter me to win. The wage cap needs to be eliminated. But that still doesn’t get the ultra wealthy as it is based on wage and not wealth. If someone is getting stock options rather than wage that should also be included in the calculation.
Thanks for a great summary of this chapter and bringing attention to this important book!
As a maximizer, trying not to maximize with SS will be hard. My wife and I are leaning toward her taking SS at 62 (she worked for 10 years and stayed home with the kids afterwards) and me waiting until later.
I will not fret about the doom and gloom that surround the SS trust fund. Will Uncle Sam make the hard choices necessary to keep the program solvent? I’m doubtful. It will probably tweak a few things and kick the can down the road.
I’m planning for about 70% of promised benefits. My attitude is that 70% of something is better than 0% of nothing.
I’ve seen both sides of SS. For my parents, it supplemented a pension and outside investments and was like icing on a cake – pretty but not vital.
For my in-laws, SS is a huge part of the their retirement income. It is the cake. SS made it financially possible for my mother-in-law to afford supplemental health insurance which was hugely important during the last years of her life. It also helps my father-in-law afford living in a senior community.
I did something a little different. I’ve got 5 kids and waited to draw SS until I hit 70. I hosted a dinner in a private room and invited all the kids and their spouses. I told them when I was their age I was convinced social security was a scam and I would never get a penny. Since some of them are skeptical too, I passed out 5 envelopes which each contained a check equal to 20% of my first check. I said, “now I don’t ever want to hear from any of you that you’ll never see a penny from SS!” Hahaha! ! It was a nice evening celebrating my birthday and sharing my first check.
That’s the way to teach Joe! Well done.
My husband is the lower earner and 10 years older than me. He waited until 70 (he’s 72 now) and his SS plus my part time wages are allowing us to coast to my full retirement (in a few years). Right now I plan to wait until at least 67 and probably 70. We both have parents and grandparents who lived into their late 80’s, 90’s and even to 103. And we are both healthy so I think there will be a time when we’re getting two SS benefits. But odds are my husband will pass before me and we have enough other retirement funds to allow my benefit to grow to be as large as possible for when it’s the only one coming in.
Other than that consideration I never really understand people who try to “game” the system. I guess that’s because I’ve worked to make sure that I have enough saved that SS will be a nice insurance policy or extra and not absolutely necessary to our retirement. If I were single I’d still wait to take it until I needed it (up to 70; of course) and not worry one bit the possibility I might not get the most possible if I dropped dead the day afterwards. But I understand people who claim at 62 if they need it.
The best information is to remember SS is a backup for saved money. The “if” is unknowable so the choice is a gamble. Finance people don’t like to gamble. Is there a way to hedge SS yet? Oh yeah, save your own money too.
It is interesting that the actuarial review indicates that lifetime payments should be same regardless of claiming age. My wife is older and claimed shortly after her FRA. I am only 60 now and probably won’t wait until FRA. I will be investing a portion of my SS with the hope that it will go to our heirs or pay for assistance in old age.
Check out Mike Piper’s opensocialsecurity site to run different scenarios. This is particularly helpful if you are married.
Took SS at 62 five years ago because running the numbers, it made more sense to invest the income than wait for the extra 8% per year.
The results are awesome. Over the last 5 years the dividend stocks-investments used have increased significantly in value and thrown off over 8% per year in dividend income. Using Grok instead of my spreadsheet, just the 8% dividend will make $200,000 more in 20 years than waiting to take SS. Appreciation will be icing on the cake.
If you are making 8% annually in your investments, it’s a no-brainer to take SS at 62 yo.
I am single and plan to start taking Social Security at 70. I have a pension that covers my fixed expenses, and it helps having a mortgage free house. For the variable expenses I use the earnings in my brokerage account and sell a few shares of a bloated VOO fund as needed. According to Mike Piper’s Opensocialsecurity site, I should have started taking Social Security at my full retirement age, but it ignores the insurance value of Social Security.
The way I look at it is: if I take payments early and live long, I will regret it. If I take payments early and die early, that’s I win, but I am dead, so who cares. If I claim late and live long, that’s a win. If I claim late and die early, I loose, but I am dead, so who cares.
I waited until 70 to take SS and I was very pleased with the amount. I agree with M169. If I die early and don’t get as much as if I had taken it at my full retirement age, so what, I don’t need it if I’m dead. All that I paid in through the years can be used by the living.
Not to be petty, but I don’t love that this assumes the husband is the higher earner. (Maybe the actual chapter in the book gives other examples where the genders were switched.) As the higher earner, I plan to have my husband take it early. He seems to think he doesn’t have longevity in his family, but as your wife does, he works out and eats healthy, and I think he is far healthier than the men in his family that have passed away early.
First of all, you realize this conversation is between two women, right?
Second, if you have to give a “more likely” scenario as part of an answer, it has historically been a man who earns more than his wife. And even today, that’s still the case.
Here’s what Google told me about stats today: “Husbands are the primary earner in 55% of marriages, while wives earn more in 16% and 29% earn roughly the same.”
Hopefully, that adds some perspective.
Thank you for acknowledging that the only way to “best” figure out how to use SSI is to “know” when you’re going to die. As we get closer to FRA, it’s becoming obvious that it’s almost a guessing game.
Thank you also for acknowledging that there’s no “right answer” to what is best for everyone. I appreciate you going over the various reasons/situations where different circumstances make different choices the “right” ones.
Apex had the best comment on when to take Social Security that I’ve ever read:
https://esimoney.com/why-taking-social-security-early-might-be-the-best-option/#comment-62628
This giveaway is over and the winner is Bill Carden. (I’ll be emailing you!)
I appreciate the comments as much as the article itself! This is truly a personal decision and I am glad that is one of the opening points. Personally I ran the numbers every which way, including short and long life spans, varying inflation rates, economic shocks, everything. I spent a year doing this before I turned 62, and the outcome was consistently the same: it did not make a material difference to our end-of-life financial situation whether I started drawing early or later. My financial advisor agreed, he told me to do what made me feel good.
So I started drawing at 62. So did my spouse. Our thinking was a little cushion earlier in retirement gives us flexibility to do more that we enjoy, and we believe spending will decrease later in life anyway as I become less active. It also reduces our taxable account draw now, which is a positive in my view. Finally, we have the reality of RMDs facing us at 75 which will provide much more than I need anyway. So we sock the SS checks into CD ladders and use it when we want for lifestyle benefits while we are traveling and having fun.
Maybe we will second guess later in life, but I don’t think so. I get a good feeling every month when the payment is deposited knowing this is for the rest of my life. In parallel we have watched our investments grow and are comfortable that we will be ok no matter how long we live.
Most interesting part to me was one party claiming at 70 and the other claiming early. This makes a lot of sense for big income discrepancies.