The first thing to understand is that SS is actuarially designed so that when you reach your statistical average life expectancy you will have received the same exact total amount of dollars regardless of whether you began at age 62, age 70, or anytime in between. Each day you live past your average life expectancy, the total amount of dollars received is greater for someone who delayed collecting their benefits versus someone who collected earlier. Additionally, the term “average” life expectancy is quite misleading. In financial planning we also study “longevity” planning, which is different than the average. The average can be misleading because averages are impacted by unfortunate events such as infant mortality or a teenager killed in a car accident. When we look at longevity, a couple that actually reaches age 65 has better than 75% chance that at least one of them will reach age 92 years old. So, if you live long enough to qualify it would seem statistically highly probable that you will surpass the average, and therefore you are better off delaying your benefit. While it may seem that way, here is why it may not.
The majority of examples that illustrate when an individual should opt for their SS benefits will look in isolation at the SS benefit, and often not enough at the details surrounding an individual or couples overall financial picture. This approach will most often encourage you to wait as long as possible. Let’s first look at the most common example, which is a married couple. Many people are unaware that unlike a traditional retirement plan, SS does not offer a traditional survivor benefit. This means that if Spouse A is earning $2,600 at full retirement, and Spouse B is earning $1,800 at full retirement, upon the death of either of the spouses, the survivor will receive the higher of the two benefits and lose the lower benefit permanently.