Delay Taking Social Security

Raising Your Living Standard

Consider the following couple. William James is 62 and his wife Alice is 57. They have annual earnings of $70K and $80K respectively, and they both want to retire at age 62. They have accumulated 700K in their 401K and 20K in their ROTH IRAs. They have 500K in regular assets and savings.

They have read that the longer they postpone Social Security, the more they will get. But it seems impossible to calculate the real impact, both on today’s living standard and on the future. They can get an estimate of the future payout on Social Security, but they also realize that waiting until they are 70 will mean that William will experience eight years (62-69) when he has no labor or Social Security income. What makes things even more complicated is that it will be another five years after he turns 70 before Alice can begin collecting because she is five years younger. Tax implications add to the complexity.

How can they smooth their living standard through this thirteen-year period and into the future? What will be the overall impact on their living standard both in the immediate future as well as down the road? Is it worth it to postpone Social Security?

Now they realize that if they both die at 75 there is no point in waiting—but they don’t know this will happen. And although their life expectancy may be in the mid-80s, they also realize that they have to plan for a maximum age of 100 simply because it is possible that they will live that long.

To discover the precise economic advantage of waiting until 70 we run ESPlanner with Social Security set to begin at age 62 and then run it again and compare with Social Security set to begin at age 70.

The table to the right shows the couple’s ages and corresponding household living standard for both scenarios: Social Security at 62 and at 70 and the percentage difference.

We see that the thirteen-year period when William is 62-75 does not entail a variation in living standard despite the fact that earnings, Social Security, retirement account withdrawals, income from regular assets, and Alice’s earnings begin and end on independent schedules. This stability in living standard illustrates the consumption- smoothing ability of the software. What we also notice is that delaying Social Security to age 70 raises the couple’s household living standard by 9.7% in comparison to taking it at 62.