Income for Life Retirement Series #5: Delaying Social Security Benefits

Our fifth article in our “Income for Life” series deals with Social Security, specifically seeing how delaying Social Security benefits will benefit you. While you may not think of it as an inflation beater since it is primarily determined by the amount you pay into the system, the good thing about Social Security is it comes with an automatic cost-of-living adjustment (COLA). For 2017 the COLA was 0.3%; however, it went up to 2.0% in early 2018.

Those percentages may not seem much to write home about. However, when inflation soared in the early ‘80s, the COLA hit a record high—14.3%. So with more than 45% of people taking their Social Security as early as possible, they have no idea exactly how much of raise they are missing out on overall. The fifth strategy of income for life is delaying your Social Security Benefits for as long as you can. Let’s look at what a difference a few years make.

Poor health issues do lead some people to take early benefits. However, if you are able, holding off just a few more years from age 62 to 66.4 (that’s 66 and four months) can offer almost $700 raise—$678 actually. That’s a pretty high price for taking benefits early if you don’t have to, especially when you factor in the COLA on those numbers. For example, the benefits of those earning $100,000 a year are $1706 at age 62. However, waiting until 66 gives them $2384 when they turn 66. That means claiming your benefits early comes at a steep price—a loss of 30% in costs if you wait until the full retirement age!

If you’ve been following the other strategies (allocation, managing spending, investing against inflation and pulling from investments), then it is possible for you actually to delay your benefits even beyond that. They say patience is a virtue and that proves to be true in this case. If you wait until age 70 to start your benefits, you’ll get a generous bonus from Social Security to the tune of 8% per year. That’s a nice increase!

Assuming the same scenario above, that’s a payout of $3167 a month. The best part of waiting—your COLA is will be based on the amount you are receiving. So, if you were drawing $3167, your COLA would be much larger than it would at $1706. For example, if your payout is $1706 with a 2.2% increase this year, that means you get a raise of $136.48 for a total of $1842.48. However, if you’re receiving the $3167 with the 2.2% increase, which comes out to a $253.36 pay raise of $3,420.36—that’s almost twice the amount you would receive taking your benefits at 62.

One thing to consider is that spouses should coordinate their strategies in order to maximize benefits for both parties. If you want help making your benefits financially simple and creating a strategy to maximize them contact us.