What if I told you I knew a secret method to increase one of your retirement income sources by 76%? What if I told you, the increase from this secret method would last a lifetime? Next if I added in the tidbit that all you had to do to get the extra money was to breathe, would you believe me? I doubt it! I think you would think I had changed professions and was now a snake oil salesman.
The things I just mentioned are all true and it is not a secret. You can increase your social security benefit by 76% by not taking your benefit at age 62, but instead delay taking it until age 70.
For example, if you were to get $10,000 a year in social security benefits at your full retirement age of 66, but say you decided to take a reduced early benefit of $7,500 a year at age 62. By drawing social security at age 62 you would be giving up $5,700 compared to what you would have received if you had waited until age 70 to start. The $5,700 is independent of COLA[i] adjustments. As you can see, if you were to delay taking your social security benefit until age 70, you would receive a 76% increase in annual income.
I know what you are saying, “By delaying social security until age 70 it will take me forever to catch up and I will probably die before I catch up”. This is a common thought, but Wade Pfau wrote an article in Forbes magazine stating the return by year that you would be giving up by delaying when you took social security.
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Receive $10,000 in Social Security at Full Retirement Age of 66
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Comparison of drawing Social Security at 62 vs. 70
The following information is from the Forbes Article by Wade Pfau (Table 1[1])
| Age | Benefits with age 62 start | Benefits with age 70 start | Difference | Return on delaying by age |
| 62 | $7,500 | $0 | -$7,500 | – |
| 63 | $7,500 | $0 | -$7,500 | – |
| 64 | $7,500 | $0 | -$7,500 | – |
| 65 | $7,500 | $0 | -$7,500 | – |
| 66 | $7,500 | $0 | -$7,500 | – |
| 67 | $7,500 | $0 | -$7,500 | – |
| 68 | $7,500 | $0 | -$7,500 | – |
| 69 | $7,500 | $0 | -$7,500 | – |
| 70 | $7,500 | $13,200 | $5,700 | |
| 71 | $7,500 | $13,200 | $5,700 | |
| 72 | $7,500 | $13,200 | $5,700 | -22.4% |
| 73 | $7,500 | $13,200 | $5,700 | -15.7% |
| 74 | $7,500 | $13,200 | $5,700 | -11.1% |
| 75 | $7,500 | $13,200 | $5,700 | -7.8% |
| 76 | $7,500 | $13,200 | $5,700 | -5.3% |
| 77 | $7,500 | $13,200 | $5,700 | -3.4% |
| 78 | $7,500 | $13,200 | $5,700 | -1.8% |
| 79 | $7,500 | $13,200 | $5,700 | -0.6% |
| 80 | $7,500 | $13,200 | $5,700 | 0.5% |
| 81 | $7,500 | $13,200 | $5,700 | 1.3% |
| 82 | $7,500 | $13,200 | $5,700 | 2.0% |
| 83 | $7,500 | $13,200 | $5,700 | 2.7% |
| 84 | $7,500 | $13,200 | $5,700 | 3.2% Healthy Male |
| 85 | $7,500 | $13,200 | $5,700 | 3.6% |
| 86 | $7,500 | $13,200 | $5,700 | 4.0% Healthy Female |
| 87 | $7,500 | $13,200 | $5,700 | 4.4% |
| 88 | $7,500 | $13,200 | $5,700 | 4.7% |
| 89 | $7,500 | $13,200 | $5,700 | 4.9% |
| 90 | $7,500 | $13,200 | $5,700 | 5.2% Healthy Couple |
| 91 | $7,500 | $13,200 | $5,700 | 5.4% |
| 92 | $7,500 | $13,200 | $5,700 | 5.6% |
| 93 | $7,500 | $13,200 | $5,700 | 5.7% |
| 94 | $7,500 | $13,200 | $5,700 | 5.9% |
| 95 | $7,500 | $13,200 | $5,700 | 6.0% |
[1] Wade Pfau, Forbes, http://www.forbes.com/sites/wadepfau/2014/04/01/delaying-social-security-what-an-investment/ (accessed April 17, 2015).
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As Pfau’s table points out, if you delayed taking social security until age 70, you would breakeven in less than 10 years (see age 80 is a positive return). Furthermore, the life expectancy of a healthy 60 year old male would likely yield a 3.2% return on your investment by delaying social security until age 70. If you are a healthy 60 year old female, your life expectancy would likely provide a 4.0% return.
As you can see, it is not a secret method but a simple cash flow math problem that yields a 76% increase in your social security benefit if instead of taking a reduced early social security benefit at age 62 you wait until age 70.
Do you see why it is important to have other retirement savings to support you until age 70? By having other income sources during retirement, you can maximize your social security benefit? If you need help creating multiple retirement income sources contact Isaac.
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[i] COLA – Cost of Living Adjustment is based on the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
Author
Isaac is a Fee-Only (no products sold) Certified Financial Planner® Practitioner. Isaac founded Stalwart Financial Planning with offices in Fayetteville NC and Durham NC. Isaac provides comprehensive planning and investment management services to individuals from all walks of life. Isaac can be reached by phone at 910-867-8464, or by email (iallen@StalwartPlanning.com). Visit him at Stawart Financial Planning www.StalwartPlanning.com.