NCPA - National Center for Policy Analysis

Less May Be More For Those About To Retire On Social Security

June 16, 2000

Seniors nearing retirement have an important decision to make regarding Social Security benefits. Should they start collecting a lesser monthly check at 65 or wait until age 70 and collect a larger sum? Now that the earnings penalty for those working after 65 has been repealed, the question is whether to start receiving benefits at age 65 or wait until age 70 and receive higher benefits.

Financial planners advise grabbing the money as soon as possible -- since it will take years to make up for the lost income.

  • Someone who is 65 and eligible this year for the maximum monthly Social Security check would receive $1,433, or $17,196 a year.
  • By deferring payments, that same person would earn a retirement credit that amounts to a bump-up of 6 percent a year.
  • So by waiting until age 70 to start collecting, a person's monthly income would jump to about $1,918, or slightly more than $23,000 a year -- a 34 percent increase.
  • But deferring payment means forgoing $85,980 a person would have received during the five-year wait -- and it would take nearly 14 years and 10 months to recoup that money through higher benefit payments.

Moreover, there is always the possibility that death could intervene before age 70. In that case, the benefits received and unspent could be passed along to heirs -- while Social Security benefit checks stop at death. Experts say people with a family history of great longevity might want to consider taking the risk and waiting.

The calculations get more complicated for people wishing to start collecting at age 62, because Social Security still docks benefit payments once income reaches certain levels. Between the ages of 62 and 65, benefits are reduced by $1 for every $2 earned above $10,080.

Source: Jeff D. Opdyke, "Ready to Retire? Planners Say Start the Benefit Checks," Wall Street Journal, June 15, 2000.


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