Dear Rusty: I am 64 years old and my wife is 62. We both have good paying careers. Our original plan was to wait until we each turned 70 before drawing our Social Security benefits. But I was talking to a friend who is a very successful small business owner who told me that he started drawing his SS benefits at age 62. He puts the funds in a mutual fund every month. He has “run the numbers “ and he is convinced that he will come out ahead rather than waiting to draw at age 70. I was shocked to hear this advice since I had never heard any expert advocate this option before. What say you, Sir? Signed: Questioning My Plan
Dear Questioning: I, too, have “run the numbers” many times. Although Social Security will say that it makes no difference when you apply (they say you get the same in total benefits no matter which age you claim) with average longevity today being in the mid-80’s (84 for men; 87 for women) that may not be true. I have done numerous “break even analyses” and have found that if one claims at their full retirement age instead of at age 62, they will have collected the same amount of benefits at age 78 in either case. That means that by living longer than age 78, you will realize more in total cumulative lifetime Social Security benefits by waiting until your full retirement age to apply. Similarly, if you wait until age 70 to claim, you will break even (collect the same in total benefits) at age 82, and if you live beyond 82 you’ll get more in cumulative benefits by waiting. If you live well beyond those ages, the extra benefits can be very substantial.
I wonder if your friend included in his analysis how the “earnings test” affected his early benefits. If you are still working and you claim benefits before you reach your full retirement age, you’ll be subject to Social Security’s “earnings limit” ($17,640 for 2019) which, if you exceed it, will cause Social Security to withhold benefits equal to $1 for every $2 you are over the limit. This applies to both you and your wife. The earnings limit doesn’t go away until your reach your full retirement age, so when contemplating whether to collect benefits before your full retirement age you should assess the ...
