When Should I Take Social Security Benefits? (Single Investor)

Note: This analysis is written with regard to unmarried investors. For married people, there are additional considerations. We’ll get to those considerations eventually, but I thought it made sense to start with the simplest scenario first.

The first step in deciding when to take Social Security retirement benefits is to see how much your benefits will increase for each year that you delay claiming them.

To see exactly how much your benefit will grow as you delay from age 62 to your “full retirement age” (your FRA is somewhere between 65 and 67, depending on when you were born), click on the year of your birth in this chart. For example, if you were born between 1943 and 1954, your FRA is 66. If you claim benefits on your birthday at:

• Age 62: You’ll get 75% of your retirement benefit,
• Age 63: You’ll get 80% of your retirement benefit,
• Age 64: You’ll get 86.7% of your retirement benefit,
• Age 65: You’ll get 93.3% of your retirement benefit,
• Age 66: You’ll get 100% of your retirement benefit

And for everybody born after 1943, every year that you delay beyond full retirement age (up to age 70) results in an 8% increase in benefits. So, for someone with an FRA of 66, if you claim benefits at:

• Age 67: You’ll get 108% of your retirement benefit,
• Age 68: You’ll get 116% of your retirement benefit,
• Age 69: You’ll get 124% of your retirement benefit,
• Age 70: You’ll get 132% of you retirement benefit.

Social Security as an Annuity

Delaying Social Security is like buying a lifetime annuity: You give up a certain amount of money right now (this year’s benefits) in exchange for a stream of payments for the rest of your life.

For example, for somebody born in 1950 (such that the numbers above would apply), if her benefit at full retirement age would be $1,000 per month, her benefit at age 62 would be $750 per month, and at age 63 it would be $800 per month.

Therefore, waiting from age 62 to age 63 is the equivalent of paying a $9,000 premium ($750 foregone monthly income x 12 months) in exchange for a lifetime inflation-adjusted annuity that pays $600 per year ($50 additional benefits per month x 12 months).

That’s a 6.67% payout ($600 ÷ $9,000). By way of comparison:

• Vanguard’s annuity quote system indicates that a 63 year old female purchasing an inflation-indexed lifetime annuity from an insurance company would only get a payout of 4.54% (and it would carry higher credit risk, as it wouldn’t be backed by the Federal government).
• For retirees with a non-annuitized portfolio, many experts suggest limiting annual withdrawals to 4% of the portfolio.

A similar analysis can be performed for each year up to age 70. Conclusion: Delaying Social Security benefits can be an excellent way to increase the amount of income you can safely take from your portfolio.

Reasons Not to Delay Social Security

There are, of course, some circumstances in which it doesn’t make sense for an unmarried investor to delay taking Social Security. For instance:

• If you need the income right now, then there’s obviously no real choice.
• If you have reason to think that you won’t live to the average life expectancy for somebody your age*, then annuitizing–whether via a purchased annuity or via delaying Social Security–is generally unwise.
• Because of the unique way in which Social Security benefits are taxed, there are sometimes tax-planning reasons to claim benefits early (if you expect your taxable income to be significantly higher in late retirement than early retirement, for example).

*There are no differences in rules for men as opposed to women, so remember to use a gender-neutral life expectancy for this comparison. (The result here is that men are less likely to benefit from delaying benefits than women are.)