Though there’s a consensus that believes waiting to collect on Social Security benefits as long as possible is best, some say not so much.
With nearly three quarters of older Americans taking their monthly Social Security benefits before their full retirement age of 66 and many opting to start their drawdown right at 62, there’s been a drumbeat of advisors and columnists, financial advisors and other gurus telling people “waiting for benefits” is the best way to go. Wait as long as possible.
By waiting until 66, monthly benefits would be 32 percent greater than by starting at 62 and more than 76 percent greater by waiting eight years until age 70. With the addition of cost of living adjustments, that beats most investments for Social Security, which is like an annuity that is paid the rest of your life, advisors say.
But there’s a growing minority of financial analysts and others who are saying there’s not always a need to wait. Some says the government can’t be trusted to keep paying the same amount of benefits with the Social Security Trust Fund facing a shortfall in 2033 when benefits could be trimmed by 25 percent if nothing is done. Some analysts fear the government may trim the cost-of-living increase in the future and thus reduce benefits. Others suggest that the government may cut benefits of wealthier Americans to build up the trust fund.
John Maxfield, a senior banking specialist for Motley Fool, says that while for most people waiting to take benefits seems like the smart strategy, he says often times that’s not the best thing to do. Even though monthly benefits are 25 percent lower by taking them at 62 instead of waiting until 66, Maxfield says what people are forgetting to factor in is the lifespan of the average American.
“Once you factor this in, it becomes obvious that only a minority of people should wait until 70 to apply for benefits,” Maxfield says.
The Oregon-based Maxfield, 34, told Complete Senior exclusively that those who advise people to wait aren’t showing empathy towards the person at the time they have to make their decision to take benefits. As a general rule, people who can wait, should wait to take their benefits if “you plan on living a long time and if there are survivor or spousal benefits if the picture.”
The number of people who can wait to take benefits is very limited, Maxfield says. A key for people in making a decision is assessing their health and optimism about their longevity, he says.
“So if you take the benefits at 66—your full retirement age instead of 70, that’s at 32 percent. I think the break-even point is 82 years of age,” Maxfield says. “If you look at the average lifespan of an American being 77 and if you look at who lives to 62, that boosts up the lifespan for men to 83.8 and for women to 86 and change. My general tenor is basically to say even if we know a lot of people don’t wait, that even if you wait until 70, it’s not like on average you’re going to be leaving a huge amount of money on the table.”
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