An advisor recently asked our in-house statistician, Dave Julian, a very common question that comes up when you start to have Social Security conversations with pre-retirees.

The question was: I just turned 62 years old. My cross-over point is 82 or 83. Studies show that Social Security may run out in 19 years. Why would I not take Social Security right away so I can have some extra money to spend and enjoy?

Below is the breakdown Dave Julian provided our advisor on things to consider with their client:

Defer taking Social Security benefits:

• Although the studies show that at the current rate the system may face trouble in the future, the system is not just going to go away. The most likely adjustments would be changing some of the more advanced strategies or raising the full retirement ages. Also, any changes may include a grandfathering clause where it only affects future retirees. 
• Other than the “break even” point, there is also the point of the insurance value of the benefit (look at it as the best annuity on the market). If you live well past the break even point and your PIA was $2,000, would you rather have $18,000 a year for the rest of your life (age 62) or $31,680 a year for the rest of your life (age 70). If you don’t have a lot of other retirement income, this bump can become critical. We do not know how long we are going to live, however, we are hurt much more by living long and taking the benefit early compared to passing away early and taking benefits late. 
• In the example above, if you were to live until age 90 (currently 1 in 4 people that live until 65 make it to age 90), the difference in benefits between taking at age 62 and 70 becomes around $143k.
• The example above does not include a COLA. Would you rather have a COLA increase each year on a lower or higher benefit?
• It’s especially important for the high wage earner to defer benefits because those benefits will not only be used for the rest of their life, but also for the rest of their spouse’s life. Again, in the example above, if you were to pass away at age 80 and your spouse lives to age 90, would you rather she has $18k a year or $31k a year (the spouse may be younger than you as well so it may be 15 to 20 years of this higher benefit)?
• The advanced strategies can only be used if you defer benefits. This can give you an extra 4 years of spousal benefits that are not available otherwise. In our example above, this would be an extra $48,000 in those 4 years.

Taking benefits at age 62 years old:

• If you were to pass away before the crossover point and are not married, you would get more money in this scenario.
• If you need the money now, there may be no other choice than to take the benefit now.
• If you need the money now, but may not need it after your FRA, you can still suspend your benefit at FRA to get increased benefits later.
• You don’t know what the rule changes are going to be.

As you can see, while there are quite a few more pros to defer Social Security benefits than to claim them at age 62, it ultimately depends on your client’s situation. Going through these benefits with your clients should make the choice clear after looking at their situation.

You can also illustrate this situation by using LifePro’s Social Security Quick Calculator; one of LifePro’s three Social Security calculators. Please click here to access the SS Quick Calculator.

For more information about the common questions of Social Security and the tools LifePro provides to you, contact your Field Support Representative by phone at 888-543-3776 or via email info@lifepro.com.