Another Take On Starting Social Security Benefits Early

My last post demonstrated that starting Social Security benefits as soon as possible at age 62 is most likely a bad bet, even if you believe that your Social Security benefits might be reduced in the future. I based this conclusion on a Social Security winners-and-losers analysis.

I then checked with a few other experts on Social Security strategies, including Laurence Kotlikoff, Phd., co-author of Get What’s Yours: The Secrets to Maxing Out Your Social Security, and host of the helpful website and online Social Security optimizer tool, Maximize My Social Security.

Kotlikoff used his optimizer tool to analyze the situation for a single male worker who would be age 62 in 2019 with an age 62 annual Social Security income of $18,867 (about $1,572 per month). This figure is close to the average Social Security benefit Americans receive.

As part of his analysis, Kotlikoff first assumed that benefits would remain unchanged – in other words, Congress would act to shore up the system. If this worker starts benefits at age 62, Kotlikoff’s optimizer tool estimated the lifetime value of all future benefits would be $604,531.

Next, he supposed that this worker delayed starting benefits until age 70. In this case, Kotlikoff’s optimizer tool estimated the lifetime value of all future benefits would be $809,034. Delaying the start of benefits until age 70 would deliver an advantage of $204,503 compared to starting benefits at age 62!

Cynicism about Social Security could cost you a lot of money 

If this worker were so cynical that he starts Social Security as soon as possible, and if Congress acts to prevent a future reduction in Social Security benefits, the according to Kotlikoff, this worker’s cynicism will have cost him $204,503!

To continue, Kotlikoff then assumed that Social Security’s benefits would be reduced by 20 percent in 2034 (the assumed fund depletion date in his calculations). The increase in lifetime value of benefits by delaying benefits until age 70 would still be $151,488 higher compared to starting benefits at age 62. This result happens even though starting Social Security benefits at age 62 would give a recipient eight more years of monthly benefits before benefits are reduced, compared to starting at age 70.

Kotlikoff estimated that Social Security benefits would need to be reduced by 80 percent to justify starting benefits at age 62. Such a reduction is highly unlikely and is way, way more than necessary to put Social Security on a sustainable basis. 

And this example was just for a single male worker. There would be even more of an advantage for a single female worker, since women tend to live longer than men. For a married couple of the same age and same earned monthly benefits, the conclusions are similar. And for a married couple where one of the spouses is younger, the advantage to delaying would be even greater than the example shown above, due to the survivor’s benefit.

By the way, Kotlikoff’s Social Security optimizer tool assumes you’ll live longer than the average lifespans. This helps protect you against the so-called “worst case” scenario – which, for retirement planning purposes, is living a long time!

The bottom line from this post and my prior post: Cynicism about the future viability of Social Security isn’t a good reason to justify starting Social Security benefits as soon as possible.

In fact, there aren’t that many good financial reasons to start Social Security as early as possible. So don’t fall prey to misconceptions, myths, and cynicism about Social Security — it could end up costing you a lot of money.

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