Knowing when and how to draw on social security benefits can be a difficult decision to make. Two questions should be considered when deciding to begin Social Security benefits.
- Which starting date will maximize expected cumulative lifetime benefits?
- Which starting date will minimize longevity risk? Longevity risk is the risk you will deplete your financial portfolio during your lifetime.
The answers to those questions are different for single retirees and for a retiree couple. It ultimately comes down to the life expectancy and the financial resources of each individual and couple.
To answer question 1, the concept of breakeven ages must be considered. A breakeven age tells you at what age you will hit breakeven if you were to file at an older age relative to a younger age. For example, if you decided to wait until age 63 to start receiving benefits, you would need to live until the month of your 78th birthday to receive the same amount of cumulative benefits you would have received if you had filed at age 62. If you live past the month of your 78th birthday then cumulative benefits will be higher by delaying benefits from age 62 to 63.
The table below shows the breakeven ages for beginning social security benefits.
As a reminder, the breakeven age reflects the age you would have to live until to receive the same cumulative benefits if you had filed at the younger age. For example, if you wait until age 66 to file instead of filing at age 62 you would need to live until the month of your 78th birthday to receive the same cumulative benefits.
The main takeaway from the table above is if you are single and your life expectancy is well less than 80, you would maximize lifetime benefits by starting to receive them at age 62. If you are single and expect to live well past 80, then you would maximize lifetime benefits by waiting until age 70 to start receiving them.
The answers for couples are different and will be addressed in a future post.