A Review of Social Security Benefits

A Bird in Hand May Not Give Maximum Benefits

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By Rick Kahler MS CFP® ChFC CCIM

“A bird in the hand is worth two in the bush.”

That may be good advice for pheasant hunters, but it isn’t necessarily great financial advice for trying to decide when to file for Social Security benefits.

A Social Security Review in [Very] Brief

Social Security pays your full benefit amount at your full retirement age (FRA). Depending on your birth year, this is around age 65 to 67. You can choose to take a lesser amount beginning at age 62 or wait until age 70 and receive a greater amount.

Many people want to grab that bird in the hand by filing at age 62. The most common reason I hear for this choice is, “Why should I wait till age 66 or 70 to collect benefits? I might not even be around by then. There are no guarantees about how long I’ll live.”

Obviously, knowing when we can expect to die would be really helpful in making Social Security decisions. If you are going to leave the planet at age 70, you would be ahead to start receiving your Social Security benefit at age 62. For every year you will live past 62, however, the odds increase that delaying your benefit to the FRA or even age 70 is the wiser financial decision.

Are You Terminal?

Unless you have a terminal illness, you will most likely be better off to wait until age 70 to begin receiving your benefits. Here’s why:

  1. First, if you are still working between age 62 and your FRA, any earnings above the $14,160 limit will reduce your Social Security benefit by one dollar for every two dollars earned.
  2. Second, the average monthly check you receive by waiting till age 70 is 66% more than what you receive at age 62. If your benefit at full retirement age is $1,000, at age 62 it is around $750, but if you wait until age 70 it is probably closer to $1,250. On average, if you will live 15 to 20 years past age 62 you are ahead to wait until 70 to start receiving your benefits. And if you are alive at age 62 and don’t have a terminal illness, the odds are that you will live another 15 years.

Of course, Social Security benefits are also indexed to inflation. This advantage is much greater than it might appear. For example, if inflation averages 3.5% a year, your benefit check will double in 20 years. If your initial monthly benefit at age 66 is $1,000, by the time you’re 86 it will have doubled to $2,000.

And … Another Reason!

Financial planner and writer Michael Kitces has pointed out another reason to delay receiving Social Security benefits. The risks and rewards of delaying benefits are not equal when you consider the break-even point. This is the age, typically 77, when your total benefit from filing at age 62 equals your total benefit from filing at age 70. He says, “While the risks of delaying benefits and dying early are limited, the upside is potentially far greater.”

If you give up one year of early benefits, you risk losing that amount only if you don’t live to age 77. But you receive double that one year of benefits if you live to age 83, and you triple it if you live to 89. “The penalty for not living to life expectancy is modest, while the benefit for outliving life expectancy is tremendous,” Kitces says.


It’s important to look at all the numbers, including your own probable life expectancy, before  you decide to file at age 62. If you settle too easily for that bird in the hand, it may turn out to be a turkey.


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7 Responses

  1. SS-COLAs

    This year seniors benefited from the robust 3.6 percent 2012 Social Security cost-of-living adjustment (COLA). Adding to the good news, they learned Medicare premiums wouldn’t take much of a nick out of their inflation raise.

    But, next year, the Social Security COLA for 2013 is expected to be 1.4 percent – and for many seniors, much of that will be eaten up by a higher Medicare Part B premium.

    Dr. David Edward Marcinko MBA



    Dr. Marcinko – The actual SS update was just released today at 1.7% [$21.03 avg] for a $1,237 month average payout.

    CPA Brooks


  3. Another SS Update

    Did you know that all employees and self-employed individuals have to contribute a larger portion of their paychecks to Social Security in 2013 than they did in 2011 and 2012?

    For 2013, the employee’s portion of Social Security taxes, officially old age, survivor’s, and disability insurance (OASDI), is 6.2% and for self-employed individuals it’s 12.4% (Of note, in 2013, the OASDI tax applies only to $113,700 of wages and self-employment income).

    CPA Brooks


  4. Do Not Invest Social Security Benefits

    Taking Social Security benefits early to invest them is not a good strategy, according to a Social Security expert.


    CPA Brooks


  5. Maximizing Your Social Security Income

    Recently, a doctor nearing retirement age approached me with the question of how to maximize his social security income. He is 62, and his wife is 4 years his junior. He made substantially more money than his wife, and as a result, his PIA is $2400, and his wife’s PIA is only $1000.

    PIA, or primary insured amount, is the monthly amount a retiree would get if he or she retires at the normal retirement age, currently 66. For every year earlier (or later) that one retires, one would get 8% less (or more). The youngest one may retire is 62 and the oldest is 70.


    Read the answer of Michael Zhuang, a founder and principal of MZ Capital, a fee-only registered investment advisor firm located in the Greater Washington D.C. metropolitan area.

    Ann Miller RN MHA



    This tactic for maximizing spousal benefits pays off most when one half of the couple has reached full retirement age with accrued earnings that exceed those of the other spouse.

    The high-income earner can file for Social Security and immediately suspend the benefits flow. The lower-earning spouse, who must be at least 62, can then file for spousal benefits while the value of the higher earner’s benefits continue to grow until he or she reinstates the claim (ideally at age 70).



  7. Early out?

    The government would love for everyone to wait until 70 before collecting SS. Statistics show that 29% of the population die before their 70th birthday. Those people paid in for years and collected nothing. That’s millions of dollars SS saved.



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