If you’re going to be 62 years old, personal finance celebrity Suze Orman has some advice for you: Wait eight more years before claiming Social Security.
Orman is an evangelist waiting until you get 70’s Social Security benefits. And it is a great goal for a lot of people.
If your full retirement ages are 66 and 8 months and you wait until you are 70 years old, then your monthly benefit will be 76% higher than it is over 76%. A higher monthly benefit reduces your chances of outlining your retirement savings. This is a very real risk for seniors, given that one-third of 65-year-old children are expected to survive to at least 90.
Here’s what is dangerous about Oreman’s advice, though: Although the math is sound, the reality is that waiting until 70 is a luxury that many older Americans cannot afford.
Why you might need your benefits before you think
According to a 2019 report by the Center for Retirement Research at Boston College, more than a third of workers would have to retire before their plan. Health issues, layoffs, and caregiving duties often drive people to leave the workforce more than they expected. It is likely that epidemic-related layoffs will only increase this number.
When you are forced to retire early, you will have to increase your savings more. Of course, this means that you have less time to save and less time to grow your investment. Sometimes, part-time work and downsizing can reduce losses. But for many people who still face an inevitable shortage, taking Social Security early is the only option.
Even if you are aiming for 70, do not mind getting caught – especially when your plans hinder working until you are 70 years old. This may mean that you need to save more aggressively while working and carefully review your asset allocation as per your retirement years.
Your breaking point also matters
You cannot predict when you will die, but your health status and how long your family members will live can help you estimate your life expectancy. Big business you weigh, do you want small social security checks, but more of them? Or large amounts of low social security checks?
Orman does not consider increasing age for Social Security, which is that you have to live to pay more late than if you claimed early. If you are in poor health or both of your parents have died relatively young, your broken point will obviously be small, and starting benefits soon is a virtue of serious consideration. If you hope to live well into your 90s, then you have a growing age and you want to be as late as possible.
It’s more than math
Waiting to take Social Security is a solid investment strategy. Returns are guaranteed from 6.66% to 8% per year for each year you wait. But what about the common Suzanne-ism, “People first, then money, then things?” This is Orman’s decision for the order in which we should set priorities.
Yes, you will have a higher quality of life in retirement with more income. But people with a good retirement nest egg may be happy to live fewer Social Security benefits if it means they can leave a high-stress job or spend more time with family.
The decision is about more than mathematics, and this is where Orman gets the wrong things.
When is the best age to seek social security?
Orman is It is true that most people will benefit financially by waiting as long as possible to seek social security. But whoever plans to delay it to 70, needs a backup plan. Unfortunately a timely job loss or medical problem can plan most carefully.
So do not run your retirement plans assuming that you will have maximum benefits. The truth is, 70 simply will never be the new 62 for many people.