I routinely talk to people who filed for Social Security benefits at 62, the earliest possible age. They either didn’t understand the value of delaying filing or felt they had no choice because they needed the money. Financial planners are in a good position to help clients understand the importance of delaying.

Consider a single man who is eligible to collect $1,500 per month in SS benefits at age 62.  If he waits until age 70, his monthly benefits will be at least $2,640, an increase of 76%. Moreover, starting in 1975 automatic cost-of-living adjustments were applied to SS benefits. While these “COLAs” have been small since the onset of the recent recession, they have still averaged almost 2.8% annually since 2000. Including COLAs into the calculation further illustrates the importance in delaying filing. If the single man mentioned above waits until 70, he would receive a whopping 119% increase in monthly benefits to $3,395 per month!

Suggest delaying filing and many clients will immediately counter that forgoing as much as eight years of benefits will take a long time to make up. True, but not as long as they might think.  Based on mortality rates, the benefit formulas are structured to be roughly actuarially equivalent for any starting age.  In other words, if median life expectancy for a man is 82 and he dies at exactly that age it would have been irrelevant at what age between 62 and 70 he started collecting benefits. The total present value of his lifetime benefits would be very similar whether he started collecting benefits at 62, 70 or any age in between.

Of course we don’t know when we will die. If the client in our example died earlier than 82, yes, he would have forgone some benefits by delaying filing.  A single person who anticipates shorter than average lifespan due to identified illness or family history would be a good candidate for earlier filing.

Overall, however, we need to think about managing one of the most pressing financial risks that older adults and aging baby boomers face: longevity risk.  Life expectancies continue to increase and, correspondingly, the financial challenges and increased uncertainties of planning for a longer retirement. Maximizing the potential for these inflation-adjusted, annuity type of benefits are one the best deals around.

Even with these powerful facts, some clients still chomp at the bit to start collecting benefits at 62. They “want their money back” or are afraid that something catastrophic may happen to the SS program.

The facts that SS assets are pooled assets or that there is no “our money” may not mollify a client who is complaining about the government and generally skeptical about the politics of the program. The wise planner may, therefore, prefer to focus instead on the very important “longevity insurance” benefit of  SS.

Paul Norr is a financial planner in Thousand Oaks, California, who writes about retirement. His website is www.paulnorr.com

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