Did you know that your life expectancy may be increasing beyond the break-even age for Social Security
income?
What are we talking about? Let’s dig in.
Social Security income timing is an important pillar to the retirement planning discussion. This topic
becomes even more top of mind the closer one gets to thinking about and figuring out where their
retirement income will come from.
We find that clients often feel it doesn’t make sense to wait to re-
ceive and start claiming Social Security benefits all the way to age
70. Typical reasoning was that they would never live long enough to
enjoy the increased benefit by claiming it later. This thinking is fu-
eled by either of two common reasons. One, that they have a poor
medical history or poor family medical history and fear an early
death in retirement. The second reason is fear of the
government changing the benefits or running out of money
before they had a chance to claim benefits.
Sometimes we suggest clients wait to age 70, which results in the maximum monthly benefit that you can
receive. Client’s who are hesitant often ask, “what am I going to do for money in the meantime?
Bridging the income gap between when you want to leave your job and fill in the missing income with
guaranteed or promised income such as Social Security Income is the missing piece. By doing the
calculations on what you have accumulated, especially in your qualified plans, and figuring out what is net
spendable after taxes and deductions becomes the exercise.
On average, waiting from age 62 to 70, the monthly Social Security benefits increase by approximately 80%.1
Clients are usually surprised at the fact that sometimes the
taxes they pay on distributions are quite low. Therefore, a very
important calculation to determine when to take Social Security
is required. Knowing the full story is very beneficial. On average,
waiting from age 62 to 70, the monthly Social Security benefits
increase by approximately 80 percent.1
So the real question is, should you wait?
Social Security’s most recent Life Expectancy table puts a
50% chance of a 65 year old male reaching age 83, and a 65
year old female reaching age 85.2
When we talk about early claiming, such as age 62, or at
full retirement age which is 67 for most people, we need
to determine if waiting for the increased benefit at age 70
is warranted. The breakeven for most people is between
ages 79 and 81. Which is just over the 50/50 mark for the
single life expectancy tables.
An age 65 year old couple has a 50% chance of one spouse reaching age 91.3
But what about spousal benefits? This is where the math and
figuring out the bigger picture gets tricky. The most recent joint life
tables show an age 65 year old couple having a 50% chance of one
spouse reaching age 91!3 So in this case, it might make sense for the
higher earning spouse to delay the longest, so their survivor benefit
will also be the highest.
The long and short of this article is that a main goal should be to bring guaranteed income into the retirement planning conversation. Having a strong grasp on your income in retirement years is vital to your planning and vital in maximizing everything that’s available to you in retirement.
To have a social security breakeven analysis run for you, as part of our second opinion process, please let us know.
Brian Ruh
Owner, Financial Adviser