By: Money & Markets
I spend a lot of time criticizing the Social Security program in this column. And make no mistake — I continue to believe that it is riddled with systemic problems that have only been worsened by lawmakers’ recent decisions.
At the same time, I’m a pragmatist. So when my own parents asked me what to do about their benefits, the first thing I told them was to delay taking payments as long as possible.
Sounds counter intuitive, I know.
After all, the conventional wisdom is to just start collecting as soon as you can.
This is both because of the program’s problems — i.e. “get as much money as you can while it’s still there” — and because it is commonly believed that the system is designed to work out the same no matter when you begin collecting.
However, the Answer Is a Lot
More Complicated Than That …
For starters, the program IS a financial mess — currently taking in less than it pays out. However, it should still have enough money to pay out current promised benefits for a couple decades.
It would be political suicide for anyone in Washington to mess with benefits for current retirees or those very close to retirement age.
And there are logistical problems with changing soon-to-be-retirees’ benefits. That’s because the government uses formulas to calculate benefits at age 60 and 62 for each recipient. They are unlikely to retool the entire process overnight.
Moreover, it IS true that the system is designed to pay out the same in total benefits no matter when you start collecting.
But the calculations are obviously based on averages and you are anything but average!
It’s important to look at your individual situation before you just accept the conventional wisdom.
Sure, if you need the money to live on then just take it.
But if you can delay taking your benefits, it might be worth your while, especially if you have “longevity genes” in your family.
Here’s How the Math Can Work in Your Favor …
The Social Security Administration will raise your future payments for every MONTH that you delay.
Annually, that will amount to an 8 percent increase (plus any cost-of-living adjustments).
So the longer you delay taking benefits, the bigger your monthly benefit.
The math differs for every person, but consider someone who’s age 66 and has the choice of collecting $2,000 a month for the next 12 months or an additional $160 every month starting a year from now (i.e. the 8 percent annual increase for delaying benefits).
The $24,000 upfront seems like the better option at first. Especially since it takes 12½ YEARS of payments to make up for that missed $24,000.
Yet according to government statistics, the average American at age 66 will live another 17½ years.
In other words, you stand a very good chance of collecting at least another five years worth of those extra $160-a-month payments.
That comes out to another $9,600 in your pocket!
So yes, Social Security is riddled with problems. And yes, it may not be around — or paying out nearly what it will hand near-term retirees — by the time I’m collecting my checks.
We will also all face higher taxes in the near future if the system is to be “saved.”
But there are still plenty of things that you can do to get more of your money back out of the system.
Don’t feel guilty about it. And don’t just sit there worrying about it.
Instead, educate yourself on all the options and possibilities and take every little advantage you can.
Do You Own Gold?