Next month my Social Security payments begin. I chose to start them because I have reached what the Social Security Administration calls “full retirement age.” This is not the same for everyone. Until a few years ago it was 65, for people in my bracket it is 66, and Congress has increased the age even further for younger people today.
No matter what one’s “full retirement age” is, we can start Social Security at 62. This is absolutely necessary because there are so many people with jobs that involve physical activity they can no longer perform, people who have lost their jobs and left the job market (these are not included among “unemployed” in case you’re wondering), and always a special concern to me, people with mental disabilities. Whatever the reason, Social Security can begin at 62. The issue is that benefits are reduced for each year one takes them prior to “full retirement age” so benefits at 62 can be much lower than a person anticipates. By pushing the full retirement age higher, Congress also punished people who need it earlier.
The SSA is also willing to reward people who delay accepting benefits past the full retirement age. The increase is currently in the range of 6% to 8% per year. If you have most of your money in interest bearing savings accounts or bonds, that looks like a great rate–substantially higher than what you can earn in such investments. A national investment newsletter recently published an article lauding the strategy of waiting as long as you can.
But the advice strikes me as incorrect. The SSA is not doing this out of the goodness of their hearts. They have actuarial tables and they know when we will no longer be needing Social Security, at least in aggregate. In other words, whenever we die, we stop receiving Social Security. Forever.
What that means as far as I can figure out is that the rate increase of even 8% is phony. Because while it is true you will start off with that increase, you will also lose all the money you would have received while waiting. A strategy of investing the Social Security you are receiving might not reap 8% over those years, but you (and your heirs) will not lose whatever that amounts to at your passing–and that strikes me as a much better deal.
If my math is correct, I suggest that people should not wait beyond their full retirement age. Start collecting it then. If you don’t need it, invest it. Or give it to charity. But betting against actuarial tables is, in my opinion, a sucker bet.