Retirement

The Age-Old Question: Take Social Security Now or Later?

By Charles Sizemore  |  December 17, 2018

You know me… I take pride in being a cheapskate. I look down on Ebenezer Scrooge for going soft at the end of A Christmas Carol and relaxing that tight fist of his.

Yet I also accept that not all decisions can be based solely on numbers. You have a life to live too.

For instance, as you may know, I love Whataburger, the delightfully unhealthy burger chain based in my beloved home state of Texas.

I love the way their hamburger grease bleeds through the wax wrapper, and I love washing it all down with a large Dr. Pepper over crushed ice.

And the fries… I can taste their salty goodness as I write.

Perhaps not surprisingly, my cholesterol is a little on the high side.

My doctor has nagged me for years, telling me I’ve probably taken a good five years off my life by eating as many burgers as I do.

If I check out at 90 rather than 95, that’s five fewer years of riding in a motorized scooter and yelling at young punks to get off my grass. I’m not going to miss those years. I’m arguably doing myself, my children, and society as a whole a favor by eating as much Whataburger as I do, thus potentially saving them years of dealing with me as a grumpy old man.

Now that you’ve heard me out, let me get to the broader point I want to address today. It’s a question that I get a lot from readers.

When to start taking your Social Security benefits?

Do you take the benefits early, or do you hold out until full retirement age (currently 66)?

Or do you hold out even longer, to age 70 or older, for an even larger payout?

There are a lot of moving parts here, but the main variables are how long you expect to live (as best you can guess, of course) and what your current uses of the funds might be.

This is going to require thinking about things you’d probably prefer not to think about. How long did your parents and grandparents live? Do you have a family history of cancer, diabetes, heart disease or other potentially short-shortening conditions?

Do you smoke? Or did you smoke for a long period of your life?

How often do you drink alcohol? Do you consume a high-fat diet? Are you obese? What is your sex or your racial background? Are you married?

Men tend to die younger than women, and single people tend to die younger than married people. Life expectancy also varies by race. For example, the life expectancy of a black male at birth is 71.2 years, more than seven years less than the general population of all Americans.

Some people live a lot longer than they “should” based on their genetics and lifestyle choices, and some people die tragically young and unexpectedly. But your decision about when to take Social Security should nonetheless include an honest assessment of how long you expect to live.

We don’t generally expect our government to make intelligent decisions, but when it comes to Social Security payments, the people in charge have done the math. It’s actuarially equal to them if Americans as a group take less money earlier or more money later. Based on average life expectancy, the expected cost to Social Security is the same either way. The question for you is whether you expect to live longer or shorter than the average American.

Let’s put some numbers to it. Based on today’s numbers, when choosing between retiring at 62 or 66, the breakeven age is a little over 77. In other words, the higher payout you get from waiting to 66 equals the longer payout you’d get from taking it at 62 by the time you’re 77 years old.

If you expect to live longer than that, you’ve made a “profit” by waiting to take the payout later. If you die before then, you would take a “loss,” as you wouldn’t have been collecting the higher payouts long enough to compensate for starting later.

The breakeven age between retiring at 66 versus 70 is between 82 and 83. So, if you expect to live past 83, it makes sense to wait until 70 to start taking your Social Security payments.

Those are the numbers. But as I said at the beginning, there are non-economic factors to consider.

If you want to enjoy an active retirement, or greasy burgers, when you’re relatively young and still in good health, you might need to take Social Security early to make that possible.

Or, if you’re like me, and are content to sit in your rocking chair at age 100 staring lustfully at the large pile of money you’ve accumulated over your life, that’s OK too.

That’s a lifestyle question that only you can answer.

Just remember, taking the money today means lower benefits later, so make sure you’re good with that.

Charles Sizemore

Charles Lewis Sizemore, CFA specializes in finding value opportunities outside of the mainstream stock market. He is a frequent guest on CNBC, Bloomberg TV, Fox Business News and Straight Talk Money Radio, and has been quoted in Barron’s Magazine, The Wall Street Journal, and The Washington Post.MORE FROM AUTHOR