September 5, 2019
Social Security: the ‘Break-even’ Debate
Our recent blog post about the merits of delaying Social Security to improve one’s retirement outlook sparked a raft of comments, pro and con.
In the example in the article, a 65-year-old who is slated to receive $12,000 a year from Social Security could, by waiting until 66 to sign up for benefits, get $12,860 a year instead. By comparison, it would cost quite a bit more – about $13,500 – to buy an equivalent, inflation-adjusted annuity in the private insurance market that pays that additional $860 a year.
The strategy of delaying Social Security “is the best deal in town,” said a retirement expert quoted in the article.
Aaron Smith, a reader, doesn’t agree. “It will take 14 years to make that ($12,000) up. Sorry but I’ll take the $12k when I’m in my early 60s and can actually enjoy it,” he said in a comment on the blog.
Smith is making what is known as the “break-even” argument, which is behind a lot of people’s decisions about when to start collecting their Social Security.
But other readers point out that the decision isn’t a simple win-loss calculation. The benefit of getting a few extra dollars in each Social Security check – between 7 and 8 percent for each year they delay – is that it would help retirees pay their bills month after month.
This is a critical consideration for people who won’t have enough income from Social Security and savings to maintain their current standard of living after they stop working – and 44 percent of workers between 50 and 59 are at risk of falling short of that goal.
One big advantage of Social Security is that it’s effectively an annuity, because it provides insurance against the risk of living a long time. So the larger check that comes with delaying also “lasts the rest of your life,” said Chuck Miller, another reader.
Last but not least, as David Gardner points out, delaying benefits is integral to married couples’ retirement planning. When the retired spouse who had the higher earnings dies – typically this is the husband – his widow begins receiving a survivor’s benefit equal to the monthly benefit he was receiving. When the husband “draws Social Security benefits early,” he leaves “a reduced survivor benefit for the wife,” Gardner said.
Arguably, people who have saved enough money to retire comfortably will do just fine if they start their benefits at age 62. “[M]aybe save and invest the money,” suggested Mike Roberts.
However, many people don’t have that luxury: about half of retirees, for example, have to rely on Social Security for half of their retirement income. They should think long and hard about the benefits of waiting.
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