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Should I Defer Social Security Until Age 70?

Posted By Dennis Damp On In ANNUITIES / ELIGIBILITY,BENEFITS / INSURANCE,ESTATE PLANNING,FINANCE / TIP,SOCIAL SECURITY / MEDICARE,SURVIVOR INFORMATION | Comments Disabled
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Many think why wait, I don’t know if I’ll live to 70! Others simply need their benefit at 62 just to make ends meet. For those who are healthy and have several decades of retirement to look forward to, and have sufficient income to see them through those early retirement years, it makes sense to hold off and apply at your full retirement age or 70. That’s what I did this year, my first check arrived this past May. Currently, only 4% of those claiming Social Security held out for the highest benefit.

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I waited for a number of reasons, first if I applied for Social Security at 62, my Windfall Elimination Provision (WEP) [3] would have consumed a large chuck of my payment. CSRS retirees are subject to the WEP reduction. I had 14 substantial earnings years [4] paying into Social Security then. When I retired in 2005, I continued to work in my publishing business. By waiting until this year, I accumulated 28 substantial earnings years, dramatically reducing my WEP penalty.

In 2019 Social Security multiplies the first $926 of average monthly earnings by 90%. This is the first of three factors they use to determine your basic benefit. WEP impacts this first factor for CSRS annuitants [5] and with 20 years or less they reduce the $926 by 40%. Essentially reducing your Social Security benefit by $463 a month in 2019.  By waiting, my WEP reduction was only $92.

Secondly, I wanted my wife to collect my larger full spousal benefit when I pass since her survivor annuity would be reduced to 55% of what I was collecting while alive.

Finally, by waiting my benefit more than doubled. My Social Security estimates from back then show the progression and they were spot on. Essentially, just by waiting until your full retirement age, in my case 66, your benefit would have increased by 30%.  Full retirement age for those born in 1960 and later is 67.

The huge benefit of waiting until age 70 is that for each year you delay applying for Social Security your benefit increases by 8%! Plus, your benefit can grow even more from adding other income you may have made either at your current job or though other employment after retirement.  Throw in the annual COLAs [6] and it just keeps getting better. The higher your income the less you have to worry about running out of money in retirement.

By the way, those 4 years between 62 and 66 will fly by, I’m 70 and it seems like yesterday I was 62. I wrote “70 and Counting” [7] last May that talks about issues like this and just how time flies. When you arrive at 66 and later at 70 many will think, “Why didn’t I wait!”  It all comes down to perception; early Social Security eligibility [8] is best looked at from the perspective that you will be receiving the absolute minimum benefit that you are entitled to.

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Disclaimer: Opinions expressed herein by the author are not an investment or benefit recommendation and are not meant to be relied upon in investment or benefit decisions. The author is not acting in an investment, tax, legal, benefit, or any other advisory capacity. This is not an investment or benefit research report. The author’s opinions expressed herein address only select aspects of various federal benefits and potential investment in securities of the TSP and companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that retirees, potential and existing investors conduct thorough investment and benefit research of their own, including detailed review of OPM guidance for benefit issues and for investments the companies’ SEC filings, and consult a qualified investment adviser. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice. The author explicitly disclaims any liability that may arise from the use of this material.

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