Dear Rusty: I’m 66 now and will be 67 in December and my question is this: Should I take Social Security now or wait? I’m still working full time and plan to work for a few more years, at least until I’m 70 but maybe longer. I was told by a friend that I should take my Social Security now and put the money into savings, invest it or use it. And, since I’m still working, I’m still contributing to Social Security, so that when I reach 70 I should get the full amount. I’m not sure if this is accurate so would like to hear your advice. Signed: Uncertain Lady
Dear Uncertain Lady: By taking your Social Security benefit now you will be locking into a benefit amount that is smaller than it would otherwise be if you wait longer to claim. You’ve already reached your Social Security full retirement age (FRA) of 66 and, since then, have been earning delayed retirement credits (DRCs) at the rate of .667% per month of delay past your FRA. You will continue to earn those DRCs – an 8% higher benefit for each year you delay — until age 70 when your benefit will be 32% more than it would have been at 66 and 24% more than at age 67. Can you do better than that by taking a smaller benefit now and investing it? That depends upon what type of investing you intend to do. I cannot answer that for you, but a guaranteed 8% increase in your benefit amount for each year you delay, resulting in a much higher benefit for the rest of your life, is pretty hard to beat.
It is true that continuing to work now may help increase your Social Security benefit, but that’s true regardless of when you claim. Your benefit will be based upon the 35 highest earning years over your lifetime (adjusted for inflation) at the time you claim. If, after your benefits start, your current earnings are higher than any of those used to originally compute your benefit, you will get credit for those higher earnings and your benefit will increase. Even after you claim benefits, Social Security examines your new earnings every year to see if you’re entitled to a higher benefit. And you will get credit for your current earnings even if you wait and continue to earn those DRCs for a much higher benefit later.
In the end, when to claim Social Security is a decision that should consider your current and future financial needs, and your health and estimated longevity. If you are working and don’t need the extra money right now, and like the idea of a higher benefit later, after you are done working, then waiting to claim makes sense, especially if you’re in good health and expect at least average longevity. Average life expectancy today for a woman your age is about 87, and if you attain at least the average, you’ll collect much more in cumulative lifetime benefits by waiting longer to claim. Conversely, if your longevity outlook is less than average and you need the money now, claiming earlier is a perfectly good strategy.
One last thing to consider: if you are married and your husband is collecting benefits, you are eligible to file a “restricted application for spousal benefits only” which would let you collect a spouse benefit equal to half of your husband’s FRA benefit amount, while allowing your own benefit to continue to grow until age 70. You can do this because you were born in 1953, before the cutoff date of Jan. 2, 1954. The option was eliminated for anyone born after that date.