Social Security author Andy Landis agrees with the experts, one should always try to claim benefits as late as possible.
When it comes to Social Security, the rule of thumb is to delay whenever possible. That means instead of taking Social Security at 62 or full retirement at 66 or 67, take it at age 70 if at all possible. Andy Landis, author of Social Security: The Inside Story, a series started in 1993, calls it the “delay strategy” that he tells people when he speaks at seminars across the country. He jokes that he’s trying to use that as an excuse to not do any household chores.
“The raise in Social Security is 76 percent, and I like to ask people which of your investments is guaranteed to rise 76 percent above the inflation rate over the next eight years with cost of living adjustments and survivor benefits,” Landis says. “I’ve been hearing more and more people say that if you have savings –and that’s a big “if” for a lot of people these days—but if you have savings and a nest egg, you might actually think about spending down your nest egg first and then getting the Social Security later. Put more of the onus on Social Security later in your career. That’s really hard for me to think about. I’m 63 and still working but it’s like my nest egg has become the untouchable. I don’t want to mess with it at all,” Landis says.
Landis uses an example to explain his point.
What if you can set aside x number of dollars to replace all of your Social Security payments for the next x number of years? Let’s say you’re 62 and are thinking of waiting until 66. How much Social Security would you get between now and then? Landis says he doesn’t expect much Social Security. It might be a $1,000 or $1,500 a month. For many others, it might be $2,000 a month or more. Then, you determine that figure and plan accordingly, he says.
“Now I’d be willing to set aside over the next four years $48,000 from my savings or a cash account of some kind to bridge me to 66,” Landis says. “Then my payment would be 33 percent higher from then on for the rest of the my life and possibly my spouse’s life. The difference is that it’s a figure certain. Not everyone has that type of savings and I totally get that but if you do, you might think about it.”
Let’s say you take your Social Security early because you don’t want to raid a traditional IRA, Landis says. You’re taking your Social Security and less out of your IRA as a result. When you hit 70 1/2, you have required minimum distributions from that IRA. Because you let it grow, you have a bigger tax problem because you postponed the IRA draw because you wanted to hit the Social Security first, he says.
“Let’s flip that around,” Landis says. “You hit the IRA early and reduce your eventual required minimum distribution and your Social Security [benefit] is bigger and it has tax benefits. I’m not a financial planner, but when I talk to financial planners, they’ll say they want their clients to draw down their IRA. If postponing Social Security is part of their strategy, they’re cutting their long-term tax bite.”
Landis says people realize that they should wait until 70 to maximize their Social Security benefits, but says they need an alternative to get there.
“They say I’m 62 or 66 and you’re telling me to wait until 70. How do I get there? What am I going to use for money? I think the idea of a bridge is a good way to think about it. The best bridge out there is to work, and people don’t want to hear that. If you work, you can postpone the Social Security because you have income, you can hopefully build up your savings some more and the longer you wait, the fewer months of retirement you need to fund. That has a huge impact if you work an extra couple of years.”