Social Security should not be the one area in which we base our decisions on achieving the most possible profit. When it comes to deciding when you want to start collecting Social Security benefits, far too many Americans are more concerned with the prospect of financial loss rather than with ensuring their long-term safety. People who take this approach are much more likely to prioritize the so-called “break-even point.” The “break-even point” for social security is the age at which you will end up with the same total amount— either by claiming benefits earlier and receiving a greater number of smaller payments or by claiming benefits later and receiving a larger amount but fewer payments.
The average person reaches the age between 78 and 83 when the difference is no longer significant. One of the most widespread concerns is the possibility of passing away before reaching the age at which benefits become profitable. However, financial advisors agree that this shouldn’t be your primary worry.
The real danger is in living so long that you deplete all of your resources, and delaying retirement provides some protection against this eventuality by allowing you to receive a considerably larger salary every month: If you were born in 1960 or later, filing for Social Security at 62 will result in a 30% reduction; but, if you wait until you are 70, you would be eligible for 124% of the sum you would have received if you had filed at the full retirement age of 67.
In your later years, you are more vulnerable; protecting yourself by taking social security later would be better. In the event that you need additional funds in your early 60s, you will most likely have different options available to you, such as taking on a part-time job or reducing unnecessary expenses. When you’re 80 or 90, you won’t have the same amount of flexibility.
Additionally, people have a propensity to grossly underestimate the number of years they have left to live. One common error is basing one’s expectations on the life spans of one’s parents, despite the fact that genetics only contributes to around seven percent of the variance in lifespan.
Another method is to use people’s average life expectancies at birth, which takes into account those who pass away before they reach their senior years. According to the National Center for Health Statistics, if you reach the age of 65, you have a good chance of living for around seven additional years beyond the average life expectancy at birth of 76.
According to Martha Shedden, president and co-founder of the National Association of Registered Social Security Analysts, couples have a greater likelihood of longevity between the two of them. However, the majority of break-even calculations rely primarily on the person. In actuality, married spouses must discuss and coordinate their respective claims.
Take the following scenario into consideration: a guy in his 60s has a wife in her 50s who earn less than he does. According to a scenario Shedden ran through Social Security optimization software, if they both claim at age 62, they will collect a total of $920,638 over their anticipated lifetimes. However, if he waits until age 70 and she waits until age 67, they will collect a total of $1.18 million. Shedden’s counsel is still the same for anyone considering filing for Social Security benefits early, not because they are concerned about their longevity but because they believe that Social Security will run out of money. She believes that even if payments were to be reduced over your lifetime, it would be in your best interest to delay claiming as long as possible because of the following benefit: Wouldn’t you rather have a greater benefit take a cut than a smaller benefit take a cut?