Practical Advice on When to Take Social Security

The topic of when to take Social Security receives much attention, for good reason.  It may be the single largest resource for many people retiring today.

Unfortunately, some of the strategies to maximize benefits were taken away this year.  The file and suspend strategy, available to couples, was eliminated as part of the Bipartisan Budget Act of 2015 (hard not to chuckle at the name of that bill).  For more information on this strategy see the link below.


The question of when to take Social Security is still a hot topic and often debated.  The first thing you need to know is that you can take normal Social Security benefits anytime between the ages of 62 and 70.  Regardless of when you take the Social Security administration makes it actuarially equal.  Meaning that if you live to life expectancy the benefit will be equal no matter what your age is when you begin receiving benefits. However, to make the benefits equal you have to make some assumptions.  The calculation has to take into account an investment return, inflation and life expectancy.  The Social Security Administration uses a 3% return assumption, according to professor Larry Kotilkoff from Boston University and co-author of Get What Yours: The Secret to Maxing Out Your Social Security.  Further the 3% is a Real Return number.  This is calculated by taking upon the gross return and subtracting the rate of inflation the net result is Real Return.

What are the factors you should consider when deciding when to begin Social Security?  First, there is no wrong choice.  Take Social Security if you need the money and are ready to retire.  If you have don’t have reasonable assets beyond Social Security, you really may not have a choice.  Not to worry the benefits are actuarially equivalent.  Take the benefits and move forward.  Remember there is risk for those who delay if they pass away young they may never collect their benefit or receive only a portion.

On the other hand, if you have other resources you should consider your options.  We believe it is best to wait as long as possible before taking your benefit.  Here is why.

You begin receiving full Social Security at your full retirement age.  This age varies based upon your date of birth, from age 65-67.  See the link below to the Social Security Administration for additional information.


The answer to the question of when to take Social Security we be much easier if you knew how long you were going to live.  This is an important consideration for you to look at.  If you are healthy, have good family history, are under a doctor’s care, exercise and eat well you might favor delaying Social Security.  There are websites that have life expectancy calculators that you may want utilize as a resource such as, www.livingto100.com

If you project yourself to be one of those living a long life you should consider delaying your Social Security begin date.  The rationale is based upon the fact that each year you wait to receive benefits, past full retirement age, your benefit increase 8% per annum, guaranteed.  This is a significant increase and it also applies to future Cost of Living increases.  The longer you live the better it is to wait.  Remember 50% of the people live beyond life expectancy.

The likely hood of life expectancy increasing is also relatively good.  It has been increasing for many decades.  The advances in medical care and research point to greater longevity.  There are big advances currently in the human genome space, personalized medicine and Nano technology. The fact people may live much longer in the near future.

Finally, we go back to the 3% real return assumption.  It is our belief the low investment returns and low interest may make this number too high.  Today, a ten-year Treasury bond will pay 1.88% before inflation, that might be zero after inflation, for a 0% real return.

In a recent blog piece entitled, Now the Good News, I wrote that the return on the S&P 500 stock index since 2000, has only been 5.71%.  Inflation during the same timeframe averaged 2.1%.  That means a 100% SP 500 large company stock portfolio has a real return of 3.6%.  Yes, enough to beat the 3% return assumption but significant risk.  Remember the deal offered by delaying Social Security has little risk.

Some suspect that Social Security will not be around to pay its obligations.  I do not believe that to be the case but certainly there are some issues the need to be addressed.

The most likely solution would require younger people to work longer before they receive their benefits.  This has been done before and will likely be required again.  If people are living much longer and healthier lives it would make sense that they need to work longer to receive benefits.  Of course this is a very complex topic.  Probably better left for another day.  For more information on this topic and others on when to take Social Security I suggest you review a recent Wall Street Journal article by Bud Hebeler.


There obviously is no catch all answer.  You need to consider many things.  I do like the idea of creating some insurance against longevity.  Currently, a subset of people, approximately 5%, are living beyond 95.  For those having a safe, inflation adjusted, larger Social Security benefit would be very helpful.  Particularly if other resources are exhausted.

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