Social Security & Medicare Questions: December 2015

Social Security & Medicare Questions: December 2015

How Long Do I Have To Collect Benefits To Make Up For Not Taking Them At 66?

Q: I’m reading a lot advice to delay taking Social Security until age 70 in order to let the benefit grow, but it seems to me, that I’m simply betting that I’ll live long enough to make up for the years of benefits that I gave up. In addition, isn’t it true you can earn as much as you want without a reduction to benefits once you turn full retirement age? If I delay Social Security benefits until age 70, how long do I need to collect benefits to make up for not taking them at age 66?


A: We set up a simulation that assumes benefits start at full retirement age of 66 in 2016, and a second that simulates waiting until age 70 to collect higher benefits due to the delayed retirement credit. We then compared how long it would take to make up the amount of benefits you would give up from age 66 to age 70. Under current law, your “primary insurance amount” (the amount your initial retirement benefit is based on) grows by 8% each year you delay until age 70. That’s an enviable return very tough to find in this economy.

Let’s say you were a medium earner through most of your career and you would receive about $1,250 per month at full retirement age in 2016. However, at age 70 you would start with $1,650. How long would you have to collect benefits to make it worth giving up four years of benefit income from 66 to age 70?

According to this specific model an individual retiring age 70 would need to live one month past age 84, or receive benefits for more than 15 years to pull ahead of the money given up from age 66 through 69. The same is true if you had high or the maximum earnings. Is waiting a good deal for you?

If you are in good health and have adequate income and job opportunties, chances are good that you would come out ahead by waiting until 70. According to the Social Security Administration’s calculator, males at age 66 can expect to live another 18.6 years and at age 70 — 15.8 years. Females can live almost 21 more years age 66 and 17.7 years age 70.

In our simulation the average earner who starts benefits at age 66 instead of waiting until age 70 and who lives until 90 gives up an extra $28,628 in lifetime income. The benefit at age 90 is $450 per month lower than if the individual had delayed until age 70. Delaying the start of benefits can also help your spouse get a higher survivors benefit should you pass away sooner. This is particularly important if you were the higher earner in the family.

Once you reach your full retirement age you can receive the full amount of your benefits and earn as much as you want to without any reduction due to excess earnings. However your earnings or other income could subject up to 85% of your benefits to taxation.