Should I Use My Savings to Delay Collecting Social Security?


































Episode 358 - Deciding when to collect Social Security is one of the most important financial decisions you’ll ever make. Make a mistake there and you’ll pay for it—every month for the rest of your life. But what if you want to retire early? That doesn’t mean you also need to collect early. A “bridge” strategy can be an important tool to get you through those years between giving up your job and collecting Social Security. It could make you much better off in the long run.













More SML Planning Minute Podcast Episodes





Transcript of Podcast Episode 358





Hello, this is Bill Rainaldi, with another edition of Security Mutual’s SML Planning Minute. In today’s episode, should I use an annuity or my savings to delay collecting Social Security?
So, you’re getting near that age. You want to retire when you reach age 65 and become eligible for Medicare, and you’re almost there. How are you going to finance it? There’s no doubt you’re going to miss having a steady paycheck. Should you file early for your Social Security benefit? That will replace at least some of your lost paycheck.
You’ll need to start by taking a look at some numbers. Let’s say that, according to your statement from the Social Security Administration, your “Primary Insurance Amount,” or the benefit you would get at Full Retirement Age, which is age 67, is $3,000 per month. But if you collect at 65, you’re starting two years early. Your benefit would be permanently reduced to $2,550 before annual cost of living adjustments.[1]
It's the permanent part that causes concern. If you live to age 85, you’re giving up $450 per month for the 18 years between 67 and 85. On the other hand, if you were to wait until age 70 to collect, you would get $3,720 per month. You’d have to forego the five years of benefits, but your retirement from age 70 on is likely to be a bit more comfortable. And “longevity risk”—in other words, the possibility of outliving your money—is one of the biggest issues people face in retirement. Waiting until 70 helps minimize it.
So, which option is better? It would be an easy choice if you knew exactly how long you’re going to live. But of course, none of us do. If you end up dying at age 71, you would have been better off collecting early. If you end up living well into your eighties, you’ll have more money overall if you choose to wait.
And then there’s the issue of the Social Security Trust Funds. They’re running out of money, and expected to go bankrupt in the year 2034. But that doesn’t mean your payment will disappear. If nothing is done between now and then, all payments will be reduced by approximately 19 percent. [2]
This has caused some people to collect early.[3] But there is a reasonable chance that the people in Washington will “fix” Social Security before any payments are reduced.[4] That’s...