Seems like every retirement conversation we have of late includes the question of whether it makes sense to defer taking Social Security. Of course, given how long people are now living in retirement, sometimes it is us that is raising the question, and it is definitely something we think people should at least give some thought to as they prepare for that phase of life
First, the basics: for each year that you choose to delay taking your full Social Security retirement benefit, your monthly benefit is increased by 8%, up until Age 70. After Age 70, there is no benefit to defer. The deferral benefit can be magnified by the fact that, once started, yearly benefits are inflation-adjusted throughout your life. [Also note that Age 65 is still the point at which you are eligible to begin Medicare no matter what you decide on your Social Security retirement benefit.]
There are tools out there that allow us to run some projections, given a variety of assumptions and scenarios, so that is a great place to start. Here are some of the things that, in the end, seem to drive the decision as to whether to defer after full retirement age:
- How long do you anticipate living in retirement? Difficult question, I know, but typically family history and recent health conditions play into this assessment.
- Do you have investment accounts and/or other retirement income that will cover your cost of living during the time you are deferring? An analysis should be done of (1) how much your required monthly income will be; (2) how much will be covered by other income sources, such as pensions; and (3) which other accounts you could most easily use and whether or not they are positioned appropriately.
- Does the security of turning on a guaranteed income source (Social Security) now provide you with more comfort/peace of mind and thus allow you to continue to grow your other assets at higher rates of return? Many of the discussions we have center around the tradeoff between having a solid, base income stream now while allowing other assets to grow/stay invested more aggressively versus having a larger income base later in the retirement years often that can be reinvested each year because it more than covers needs.
It truly is an individual decision, given all the different variables. Having the discussion, though, helps to frame the things that are most important to you as you enjoy your retirement years.