Wait Until 70 For Social Security

by: Arnold Landy

It is very tempting to start collecting at 66. If your Social Security benefit at that age is, say, $2,500 per month, that equals $30,000 per year. If you retire and postpone collecting until 70, you will have to make up for that missing Social Security income by drawing down your savings by $30,000 for each year that you had waited since reaching 66. Waiting those four years until age 70 will run down your savings by $120,000. Ouch!

But for each year that you waited, your monthly check will grow by about 8% plus the annual cost-of-living-adjustment [COLA]. So, by waiting 4 years, at age 70, you would collect about $40,000 per year instead of $30,000, and that would continue, with an annual COLA added, for the rest of your life. And that COLA will be greater each year, because now it will be based on a bigger monthly check.

An added bonus is that a surviving spouse has the option of taking over the higher monthly benefit of the one who kicked the bucket first.

By waiting until age 70 to start collecting Social Security, you will have traded away $120,000 (in the above example) in exchange for an 8% lifetime income on that money, plus a COLA, guaranteed by the US Government.

Most pensions are fixed and lack a COLA. The same is true of payments from bonds, bond funds and annuities. So, the income from pensions and fixed income investments buys less and less EVERY YEAR as you get older. It becomes a challenge to invest your savings in way that overcomes the financial damage that inflation rains upon retirees. The stock market is great for that over the long run, but is volatile. Waiting until age 70 to collect Social Security enables you to offset a bigger chunk of your expenses with a guaranteed fixed income (your Social Security check) that keeps up with inflation. Then, your savings can be invested to cover the rest of your expenses, but that becomes less of a challenge when the lion's share of your basic expenses already are covered by your big, fat Social Security income.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.