A question that is coming up more and more as Baby Boomers are reaching retirement age. When should you start taking social security? This is a complex question, and there is no one size fits all answer. However, there is another question that I hear almost as frequently. How can you make sure you have safe, inflation adjusted income for life? That’s also a very complex question. But often part of the answer is to delay taking Social Security until age 70, when you’ll collect the maximum benefit.
For the following discussion I’m making three assumptions. They aren’t true for everyone, but demographically it’s the most common for a couple in the US today. A) The husband is older, B) The wife will live longer, and C) The husband made more money during his career and so he will collect a higher Social Security payment.
Sometimes I hear from a man in his 60’s saying that his health isn’t very good, so he starts taking Social Security at 66 or younger. But there are two important things that take place with waiting to claim Social Security. One, is that you get the maximum, inflation adjusted benefit. The other, is that if you are a primary wage earner, when you pass on your spouse generally can assume your Social Security payments.
It’s of course a guessing game, we don’t know how long we will live. But if the goal is to make sure that you both have a decent lifetime income, it often makes sense to wait to collect social security. That’s true even if it means drawing more on other assets. The goal here is to make sure that the couple has enough income for life, not to beat the system. It’s really a form of longevity insurance. Keep in mind another important demographic. A healthy 65 year old couple has a 25% chance that one of them will make it to 97. An extra large Social Security check will look awfully good for those last 27 years.
There is a caveat. Many people are convinced that Social Security will run out, and that they’ll never collect all their benefits. That is unlikely. Remember Social Security taxes (FICA) are not like any other tax. We all paid into Social Security so that we’d have income in our later years, it‘s not to be used for anything else. It is the most popular social program ever. If the US Government tried to repeal it, there would be a massive uprising. There is no way it’s going away. But if that’s your fear, then take as much Social Security as you can get as quick as you can and buy those hard assets for the coming financial apocalypse. It’s also possible that Social Security benefits will be reduced sometime in the future. But that’s more of a worry for younger workers, not for Baby Boomers.
This is a very complex subject, and it’s not one I can even come close to covering in a single investment tip. But keep the long term goal in mind if you’re tempted to take Social Security in your early 60’s.