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It’s a hard question to answer because how long someone will live is the key to answering it, and that’s something few people can know. About 40% of American workers take social security benefits early (somewhat down over the past decade). But generally speaking, if you do the arithmetic, it pays to wait as long as you can before collecting benefits, certainly until normal retirement age and, for many people, later than that. The break-even age for taking early benefits at age 62 instead of at the normal retirement age of 66 is “76”. In other words, if you live past 76 years of age you’ll collect more in benefits by waiting until age 66 to start collecting instead of taking early benefits. And this doesn’t take into account the possibility that working past age 62 might raise you AIME, which would increase the benefits of waiting until normal retirement age even further.
When it comes to delaying benefits past the normal age of retirement, the break even age between taking benefits at 66 and taking them at 70 is “83”. Considering that so many people now live into their late eighties and nineties, it makes a lot of sense to consider this, even if you’re not going to work during that time. If you are going to work past 66, it’s almost a no-brainer, assuming that you have enough income or other assets to live on while you wait.
It’s a good idea for married couples to coordinate their Social Security planning. The “file and suspend” strategy is something to consider when spousal benefits are greater than benefits based on one’s own work. There’s another strategy to consider called “free spousal benefits”. In this case one claims spousal benefits until reaching age 70, then claims one’s own benefits which have increased by 32% because of delayed retirement credits. In order to do this one has to wait until normal retirement age in order to claim spousal benefits because of the “deemed filing” policy of the SSA. Couples should also realize that delaying retirement in order to increase benefits will also increase any potential survivor benefit for the spouse who survives the longest.
There’s also income tax to consider. Generally speaking, when Social Security income is added together with substantial sources of other income, 85% of the Social Security is subject to income tax and the increase in total income might increase the marginal tax rates at which all income is taxed. This would apply when a single recipient earns wages while collected benefits, either before or after normal retirement age, or when one spouse in a married couple still works while the other is retirement.
In other words, it pays to plan ahead.