The Social Security Dilemma

One of the many things that I love about personal finance is that it is personal – or at least I believe it should be. And yet, it is surprising how many times we are willing to accept a strategy provided to the masses as the “right” way to do something.

Let’s take Social Security for example.

Many financial advisors and mainstream financial commentators recommend waiting until age 70 to “maximize” your Social Security benefits. This near universal recommendation may have you thinking that is the “right” answer.

As you probably know, you can start collecting Social Security as early as age 62, but your benefit amount will be reduced if you start before your full retirement age. Alternatively, you can delay collecting benefits beyond your full retirement age up until age 70 and collect a higher benefit amount.

But there is a catch…

The point at which the value of deferred benefits surpasses benefits which could have been collected earlier is known as the breakeven.

So, in order for you to collect more money from Social Security (not just get a higher benefit amount), you will need to live beyond the breakeven.

That means we need to look at life expectancy, and, fortunately for us, the Social Security Administration provides a handy life expectancy table.

According to their table, the average life expectancy for a person turning 62 is about 20 years meaning they will make it to about age 82 (slightly less for men and slightly more for women).

On average, an individual collecting a Social Security benefit at age 70 vs. 62 has a breakeven at about age 79. That means that the average person would be better off waiting, right?

Sure, but waiting til when?

You see, the longer you wait to collect, the further into the future your breakeven.

If you collect at 70 vs. 63 the breakeven moves out to about age 80.

Collect at 70 instead of 68 and you would need to make it to age 83.

And 70 vs. 69  – well, your breakeven at that time is nearly 85.

What’s the life expectancy for an average 69-year-old making that decision? About 84 ½. If you are lucky, you might be able to take that extra money and buy a really nice sweater.

But, beyond the breakeven question there are other considerations that need to be taken into account when looking at when to collect. Are you married? How much income do you need? What kind of lifestyle do you want? What are your other sources of income? What is your tax situation? What are your legacy goals? How is your health?

So, if it isn’t just as simple as “wait until age 70”, why do so many financial planners and experts suggest waiting?

I think there is a certain amount of personal bias coloring the advice. When it comes to making a recommendation about someone else’s financial decisions, most experts (including yours truly) want to eliminate the possibility of being “terribly wrong”.

So, if we recommend you wait to collect Social Security until age 70 instead of at 62, mathematically, the advice stands a very good chance of being correct.

And, if you die early – thus leaving money on the table, you won’t be around to complain.

In the advice game we call that a win-win.

Now, I’m all for delaying collecting Social Security benefits if it makes sense to your financial plan. However, a myopic approach of simply “maximizing” Social Security without considering the entirety of your situation is not the best option. And neither is blindly following the advice peddled in the press by those who’ve never spoken with you personally about your unique situation.

If you want to know what strategy might make sense for you, let’s get back to personal. Sit down with a financial planner who can help you consider all of the options. And if you don’t have a financial planner, I’d be happy to help.

Anderson Wozny and Wozny Capital Advisors, LLC are not affiliated with or endorsed by the Social Security Administration or any other government agency. The information presented is believed to be from reliable sources, but no responsibility is accepted for any inaccuracies.