Among the most consistent questions my colleagues and I have received as financial planners from investors relates to the timing of when they should take their Social Security (SS) benefits. Social Security is a relatively complex system with many rules that pertain to various circumstances. Let me first emphasize that there are no absolute answers, and each individual’s situation should be assessed on its own merits. Unless of course you can tell me precisely when you will die, in which case I can provide you with a far more precise answer.
I would venture to guess that the majority of articles and publications on this topic will suggest that you wait as long as possible to collect. I will attempt to defy what may be the conventional wisdom, because in my experience the conventional wisdom is often wrong. Let me first say, none of this is based on the known actuarial problems facing the SS trust fund, which begins to run a shortfall projected around the year 2033. The SS trust fund is made up of intragovernmental debt (US Treasuries). The funding sources for SS have been merged with the general taxes collected for many decades. Since the United States operates with a fiat currency, “running out of money” is essentially impossible. I say this not to minimize the challenges that such entitlement programs face, as they can have many other substantial economic consequences on the nation beyond the scope of this article. However, the fear of the government “running out of money” should play no role in determining when you should collect your benefit.
SS benefits allow, under normal circumstances, that you can collect your benefits prior to your full retirement age (FRA) as early as age 62, or past your full retirement age as late as age 70. Full retirement can be differing ages as defined by SS depending on when you were born. Each year you delay the benefit, it increases by 8% using a simple interest calculation rather than a compounding calculation.