Why Delaying Your Social Security Benefits May Not Make Sense

Why Delaying Your Social Security Benefits May Not Make Sense

At Warhammer gaming night on Sunday, the topic of retirement age came up.  Two of us are retired, but not the oldest people in the group.  When a person hits about 60, it’s time to start running the numbers and thinking about when to jump.

In my mid 50’s, I stopped working at summer camps to see how I’d handle having a big chunk of time off.  I like to socialize at work, so thought I might become a bored hermit.  That isn’t a big issue with friends of about the same age because some of them will also retire.

I enjoyed teaching, but retired at 61 years old when it didn’t look like it would be so enjoyable anymore.  The teacher retirement benefit meant that I wasn’t in dire need of Social Security, and didn’t expect much.

Retiring and taking Social Security (SSA) are two different things.  A person strapped for cash will take SSA as soon as possible.  A person who is in their 60’s and strapped for cash is unwise, unskilled or unlucky.  I figure a person should have loans payed off before retiring.

Economists commonly recommend that most Americans should delay claiming Social Security benefits until age 70.

Economists consider maximizing the benefit and don’t consider most real-world circumstances.

For example, a person retiring at age 62 could get a benefit of $2,100. The benefit would rise to $3,000 if the person waited to age 67 and $3,720 at age 70.

A person retiring at 62, is getting $2100 per month, is not paying anything in or going to work.  Waiting until 70, the person gets almost 80% more per month, but has missed out on $200k in benefits.

Making an assumption about rate of return, it is not difficult to figure out how many years it takes for the greater monthly benefit to exceed the $200k in deferred payment.  It’s about 10 or 12 years.

I wasn’t going to work either way, but figured it this way.  I will be healthier, more vibrant and have more fun with money at 62, than I will at 70.

A 2025 study from the Retirement Income Institute found that retirees spend about 80% of guaranteed, predictable lifetime income (such as Social Security, pensions and annuities), but only spend about 50% of portfolio income.

That study, that I didn’t read, says that a person doesn’t mind spending most of their Social Security money because more money is coming next month, forever.  Presumably the person doesn’t need to save for large expenditures because there is other money in the bank.  People don’t like dipping into the nest egg because when that’s gone, it’s gone.

I started taking Social Security when I was 63.  Not that I needed the money, but it was money that I wouldn’t mind spending.

For a prudent person, retiring is a mind-boggling financial situation.   By retirement age, a person has a life style, and possibly a set of unmet experiences.  A monthly pension and SSA benefit sets a budget to operate within.  Don’t go wild, but don’t save for the future.  This is all the future you get.

Any experiences or travel occurs now, or accept that it will never happen.  Assume that health and vitality will be better this year, then it will next year. 

The nest egg, investment portfolio and home equity can be used, while retaining a couple of hundred thousand for a senior living facility. 

Some people intend to leave an inheritance for their children.  I don’t have kids, but in my experience, that isn’t a great strategy for a retiree in good health.  The children are likely to be in their 50’s.  Their lifestyle is established, and the money isn’t going to change anything.  The inheritance will be rolled into an existing portfolio or squandered, as their habits dictate.

A better strategy is for a retiree to spend time and money on experiences with the grandchildren.  Parents are caught up in day-to-day routines, so don’t have the time, money or energy for more extravagant supplemental activities for the kids.  That seems like a good job for grandparents, especially those who retire while they can still have fun.

I don’t have any grandchildren, and I’ve seen enough and done enough.  Instead, I’ve got a willful beagle who is always thinking and always hungry.  My house and patch of land gives me a dozen new project ideas and enough friends to keep me from turning into that bored hermit.

Retirement is a good life, so don’t put it off too long.