Thinking About Social Security?

If you believe the scaremongers in the financial press and elsewhere, the clock is rapidly ticking down to the time — early June, according to the Wall Street Journal — when the U.S. Treasury will default on its obligations unless Congress passes legislation to increase the debt ceiling.

If Congress doesn’t act in time, the government will default on all of its obligations, we’re told, including payments due Social Security recipients, veterans, and beneficiaries of other government programs, not to mention the millions of investors both foreign and domestic who own the $31.5 trillion (and counting) of outstanding government debt.

If you’re like me, you’re probably tired of reading another story about what a monumental disaster this could be, but don’t worry, I’m not going to bore you with one.

I’m just using the debt ceiling drama as a segue into one of my financial pet peeves, and that is the advice we’re constantly given about when is the best time to start claiming Social Security benefits — assuming there are any in the event Congress fails to act and the government defaults.

If you believe the scare talk and you’re over 62 and therefore eligible for Social Security, you’re probably thinking you should apply now before the government runs out of money.

But according to the experts, you’re supposed to wait until you reach your “full” retirement age, which for most people is between 66 and 67, depending on what year you were born. (“Full” means you can earn as much as you want from a job and still collect your full Social Security benefit; if you start collecting before that, any money you earn from a job reduces your benefit dollar for dollar, although you’ll eventually get it reimbursed over time. But we won’t get into that right now.) If you can wait even longer, until you’re 70, you’ll reach your “maximum” benefit.

By waiting until you reach your full or maximum retirement age, these experts say, you can earn a much larger monthly Social Security check, or about 8% a year, for as long as you live. Which is pretty substantial, and it’s true.

However, these same experts almost invariably fail to tell you that by waiting until you’re 67 or older, you’re forgoing Social Security payments you could have been collecting in the interim, which can also add up to a nice amount of money.

But what if you don’t live that long and never collect? 

Actually, there is a breakeven point at which you would have earned just as much money by collecting at 62 rather than waiting to get a bigger payout later. That breakeven point is around 78 or 79 years of age, which just happens to be about the same age as U.S. life expectancy at birth.

As it turns out, many people — rightly or wrongly — ignore the experts’ advice. Indeed, about a third of Americans start collecting as soon as they’re eligible, i.e., when they’re 62. Did they make a mistake?

That’s impossible to say, because nobody has any idea when they’re going to die, which is what makes the whole investing and Social Security claiming game so challenging. If we all knew exactly when we would die, think how much easier financial planning would be.

If you knew you only needed enough money for, say, 20 years of retirement rather than 30, wouldn’t you breathe a lot easier? Instead, you have to plan for an indefinite number of years, either less than 20 or maybe a lot more.

That’s the problem I have with these experts who tell you to wait, and they all sing from the same hymn book. But this advice doesn’t apply to everyone — everyone’s situation is different — so they shouldn’t generalize and assume what’s right for me is right for you.

Many people are in bad health and don’t expect to live a long life, or their family histories indicate that they’ll die relatively young, so it makes sense for them to collect as early as they can. Lots of people really need that extra money as soon as they’re eligible. How about the many people who have been employed since high school and are simply tired of working and don’t care if they could earn more by waiting to collect?

That’s another bit of advice the experts recommend — work longer. That’s easy for them to say. But it’s not always about money, you know.

So, yes, it does make more sense — for some people — to wait and max out their Social Security benefits. But you only know if you made the right decision until it’s too late.

Of course, that doesn’t answer the question if Social Security will be around when you’re ready to collect. That’s a possible subject for a future column.

George Yacik
INO.com Contributor

Disclosure: This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.