If you knew ahead of time when you were going to die, this would be an easy decision!
I wrote before about this topic and concluded that while there were good arguments for collecting "early" or "later" - the upshot for most people is they claim when they need the money.
To recap, there are two schools of thought on this subject - and gradations in-between. The first was explained to me by an Accountant in Ithaca, New York. "Collect at 62!" he said, "that way you get more money overall!" And he is right about that, in a manner of speaking. As you can see from the chart above, the amount you receive increases linearly the longer you wait. At age 65, I get about $2600 a month and if I waited until at age 70, I would receive almost $3800 a month. For each year I delay, the monthly income increases by about $200 a month.
So why not wait until age 70? Well, his argument was, that the average person lives to about age 78 or so, and if you collected at age 62, versus collecting at age 70, if you lived to be 78, you'd collect more, overall, by collecting early.
Let's use the data from my 2022 Social Security statement, when I first qualified to collect at age 62. Back then, the benefit was $1940 a month at age 62. If I waited until age 70, the benefit would have increased to $3280 a month. You can see that the Social Security payments (as shown above) have been adjusted for inflation since 2022!
Collecting "early" yields: $1940 x 12 x (78-62)=$372,480
Collecting "late" yields: $3280 x 12 x (78-70)=$314,880
So, in a sense, he is "right" that you collect more overall, provided you die on the required date.
Plugging in the math the other way, in order to yield $374,480 if you start collecting at 70, you'd have to live to about 79-1/2 years, which is not beyond the realm of possibility. Of course, death statistics are just that - an average of everyone including infants who die in the cradle, teenagers who die in motorcycle accidents, to middle-aged people dying from cancer. If you live to be 60, odds are you will live beyond the "average" lifespan of 78 years. The sample pool of data has been culled of those already dead.
So in effect, my friend in Ithaca is right - and wrong. If we only knew when we were going to die, it would be an easy equation to solve!
The second philosophy is based on other factors than dying. Being ill and unable to care for yourself is a very probable outcome for many of us. So if you live to be 80 or 90, you might want to have that extra income around. Medicaid will probably force you to burn through your savings at that point, before they pay in. So it might make "sense" to spend your IRA/401(k) cash first, and then live on the expanded Social Security payments at age 70 - which would pay out the rest of your life, regardless if you lived to be 78 or 108.
Initially, I sort of vacillated between the two philosophies. I didn't "need" the money at age 62 and the payout was so paltry (so it seemed) that I might as well wait - perhaps to age 70, or at least until "full" retirement at age 67. But then again, there is nothing magic about age 67 - the payout is pretty linear with age, if you look at the chart above. So waiting until age 67 is fine, but collecting a month early doesn't deprive you of a significant chunk of money.
As the chart above shows, I am now on Medicare, or will be, effective March 1st. I got my shiny new Medicare Card (Parts A and B) in the mail and laminated it! It was dead simple to apply online through ssa.gov once you set up your master login at https://secure.login.gov/. That master login can be used for any government site, such as Medicare, Social Security, or the State Department (the latter of which I used last month to renew my passport). Some folks claim you should make an in-person appointment with the local Social Security offices. If you do, plan in advance as many are booked out for months at a time. I found the online experience pretty easy to use, though.
Age 65 has been one of those inflection years for me. At age 30, I had my first experience with gout. At age 40, it was diverticulitis. Both were sobering (and painful) experiences. You start to realize you are getting old. Well, this year has been a doozey. And I realize the party might not go on forever, or at least I doubt I will live into my 90s - or want to. Those last years in a nursing home shitting in a diaper? Hard Pass.
I remember we went to visit Mark's Grandmother at Shell Point when she was in "The Pavilion" - their nursing home care section. She was in a hospital bed, her thin skin covered with bruises, and a big blue curtain separating her from her roommate and the window view - not that she would have noticed anyway. In front of the bed was an enormous tube TV playing nothing but static. I offered to turn it off for her and she said, "No, that's my favorite program!" God Bless!
No, I could do without that experience.
But regardless, I realized that if I live to be about 80 or so, I would be doing pretty well, given my physical condition. And if we do the math on that target number, it works out as follows:
Collecting "today" yields: $2602 x 12 x (80-65)=$468,360
Collecting "late" yields: $3771 x 12 x (80-70)=$452,520
In fact, at this point, I would have to live another six months just to break even. For each additional year I would live, I would "lose" about $12,000 a year in benefits.
That latter part sounds scary, but consider the alternative scenario. How do you think you (or you next of kin) would feel if that first Social Security check arrives just in time for your funeral? You wait until age 70 and then get hit by a bus. Who says God doesn't have a dark sense of humor?
We see this all the time in RV forums: "For Sale, Deluxe Class-A motorcoach, low miles, only used once, must sell due to death in family." A little longer than Hemingway's "baby shoes" short story, but just as poignant. Mom and Dad work like dogs their whole lives, and finally are able to retire and buy their "dream" motorhome and travel across America! But on the first trip, Dad is coughing up blood and when they get home, discover he has terminal cancer. It happens a lot to people. Heck, they even made a movie about it.
So, I pulled the trigger on this and applied online for Social Security. Maybe it was a psychological thing, as in earlier years, a number in the teens didn't seem like much, but $2600 seems like a lot - $31,200 a year! Maybe not enough to live on, but a big chunk of my annual income as it is.
The decision is not irreversible, either. If you change your mind, you can "suspend" benefits for as long as you want to - until age 70, when the payments will automatically kick in. And yes, while you are in suspension, well, the monthly amount again ratchets up.
The folks in The Villages found a loophole here and it has since be closed. Thanks Boomers! Seems you could claim retirement for yourself and your spouse could collect a "spousal benefit" up to 50% of what you were getting. Wily retirees realized they could "claim and suspend" their Social Security benefits, which would allow their spouse to claim the 50% spousal benefit. Then, they could wait until age 70 to claim the maximum benefits, each. It was a neat scheme, but today the law has been changed such that spousal benefits are available only so long as the primary beneficiary is not suspended (does not apply to divorced spouses). The spouse has to be 62, and if their own benefits exceed the spousal benefit, well, they collect that, instead. Fun while it lasted!
There are, of course, a whole host of other factors to consider. Inflation, for example, as well as cost-of-living adjustments factor into the math (but are too complicated to consider here). There is also the prospect of Social Security becoming insolvent, or as Trump has promises - abolished! I still scratch my head in wonderment why people on Medicare, Medicaid, Social Security, Obamacare, SSI, TANF, SNAP, or Social Security Disability voted for a guy who promised to cut their benefits. I guess they thought it would only apply to "the other guy."
And granted, there is some fraud in Social Security - or any benefits program. The disability portion can be readily abused if you can fake a back injury, mental illness, or other problem and have a friendly doctor (and/or lawyer) fill out the paperwork for you. It is hard to police, to be sure. But abolishing a program that has worked for nearly 100 years isn't the answer.
If they "abolish" Social Security, what would that mean for those currently collecting it? Would those already collecting be "grandfathered" in, or would their payments be cut off? For many, this would mean a dent in their lifestyle. For many more, it would mean devolving into abject poverty or even homelessness. A surprising number of older people are living month-to-month on Social Security. It literally is their lifeline.
All this talk of Social Security "insolvency" of course, is nonsense. Conservatives - in the US or anywhere else in the world - love to underfund these programs and then say, "See? They don't work!" And we are seeing this right now with National Health in the UK and Canada - with "horror stories" being spread by the far-right about how long it takes to get elective surgery. Meanwhile, in the United States, women are dying due to miscarriage, as nervous doctors don't want to be charged with "murder" for performing an "abortion." Other patients are told to go home and die, if they don't have cash-up-front or good insurance. It happened to a friend of mine and it happened to me. If I can live to March 1st, I'm good, though. Some system!
But I digress.
When to collect Social Security is a personal question. If you are fit and spry (I don't do spry!) you might want to wait until age 70. If you are that fit, of course, you might want to think about fully funding your 401(k) plan, too. Sucks to run out of money in old age - something Social Security was designed to help prevent. On the other hand, if your health is not so hot, well, maybe collect earlier. But since it is a reversible decision, well, don't sweat it. You can change your mind during that eight-year window.
Like anything else, people make it out to be more complicated than it really is.
