Retiring? Four reasons to delay social security.

Many people nearing retirement age must start benefits immediately for financial reasons. But those who do have a choice should consider the potential benefits of waiting. Here are four reasons to think about delaying your Social Security.

Department of Treasury/AP/File
Tays of printed social security checks waiting to be mailed from the US Treasury's Financial Management services facility in Philadelphia.

As you near retirement, you face many important financial decisions. How much can you afford to spend each year while making sure you don’t run out of money? When should you start taking your pension, if you get one? Which account should you pull money from first?

One of the biggest decisions is when to start drawing Social Security. According to the Center for Retirement Research at Boston College, about 42% of men and 47% of women start taking benefits at age 62, which is the earliest you can do so. The earlier you start taking benefits, the less you’ll receive every month. The longer you wait, the larger your monthly benefit will be.

Some people don’t really have any choice and must start benefits immediately. But those who do have a choice should consider the potential benefits of waiting. Here are four reasons to think about delaying your Social Security.

1. People are living longer than ever

According to Social Security’s life expectancy calculator, the average man reaching age 62 will live to almost 84, while the average woman reaching 62 will live to 86. This is good news for longevity — but not so good news for finances. You’ll need your money to last as long as you do. One way to help make that happen is to delay Social Security to receive a higher benefit, which can take stress off your savings. A higher benefit also means your annual cost of living adjustment (COLA) will result in more money in real terms. Here’s an example from a year with a 2% COLA:

$1,000/month benefit x 2% COLA = $20/month increase
$1,800/month benefit x 2% COLA = $36/month increase

Because you’d be starting from a higher base, your benefit would increase by $432 in such a year rather than $240. The extra $192 is excellent protection against inflation.

2. Benefits grow 8% each year you wait

For each year you delay starting Social Security between 62 and 70, your monthly benefit increases by about 8%. In today’s low-interest-rate environment, it is impossible to find an 8% guaranteed return. Any investment professional worth his salt will tell you the stock market cannot guarantee that type of return every year.

As a real-life example, I have one client whose benefit amount at age 62 is $1,736 a month. If that person waits until age 70, the benefit increases to $3,259 a month. That’s an 87.7% increase — close to twice as much! Waiting till age 70 will, of course, mean missing out on eight years’ worth of benefits, but going back to my first point, if you live long enough, you will more than make up the difference. The client in the example would do so before reaching 80.

3. Big IRA/401(k) tax savings possible

Once you’ve decided to delay Social Security, the natural question is: Where do you get income while waiting for your benefits to start? Since most people in this situation will not have any other source of taxable income, this provides an amazing opportunity to take money out of an IRA or 401(k) at low or zero tax rates.

This is the grand slam of tax planning. Imagine putting money in your 401(k) to avoid a current tax rate of 25% or more, allowing it to grow for decades tax-deferred and then taking it out in retirement with owing any taxes. I’ve had clients be able to do this with proper planning, and it’s a wonderful result. If you don’t need the money immediately, consider converting it to a Roth IRA. You take advantage of low or zero tax rates, and then your money can grow tax-free from then on.

4. Spousal benefits can pay you to wait

 A big financial benefit of marriage is the ability to collect benefits based on your spouse’s Social Security record rather than your own. It can be a complicated decision, but basically you can collect a benefit equal to 50% of your spouse’s full retirement age (FRA) benefit once you hit your own full retirement age — 65 to 67, depending on when you were born. You can collect this benefit and continue to delay your own benefit until age 70, at which time you switch to your own higher monthly payment. You can claim a spousal benefit before reaching your FRA, but Social Security will only give you the higher of your own benefit or the spousal benefit, and you will lose the ability to defer your own benefit.

Divorced/widowed people eligible, too

Those who are divorced but were married longer than 10 years have a right to claim spousal benefits based on their ex’s record. (This has no effect on their ex’s benefits.) Those who are widowed are allowed to claim survivor’s benefits as early as age 60 with no effect on their own retirement benefit.

I strongly encourage anyone who is divorced or widowed to visit with an expert to help make smart claiming decisions. Social Security agents are not allowed to give advice and may not even be knowledgeable in basic claiming strategies.

Learn more about Steven on NerdWallet’s Ask an Advisor

You've read  of  free articles. Subscribe to continue.

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to