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Retirement Boost: How Waiting for Social Security Can Help Increase Your Benefits

By Shai Akabas, Brian Collins

Monday, April 6, 2015

Everybody’s looking for ways to increase how much money they have in retirement. Here’s one strategy for savvy savers that can net an extra $10,000 and reduce their risk of outliving assets – without having to work a day more.

At a BPC retirement event on April 1, John Haley, the CEO of global professional services company Towers Watson, pointed out a simple way to increase retirement income that many folks don’t consider: using a portion of their accumulated savings to provide income over several years in retirement while delaying the date when they start collecting Social Security benefits. If they wait until age 70, their total lifetime benefits could increase by over $10,000. Put another way, their monthly benefit check would be 77 percent larger than if they’d claimed their Social Security benefits at age 62.

This strategy requires being smart about how Social Security works. So, here’s what you need to know:

  • Your annual earnings are averaged for your working years and a benefit formula is applied to determine your primary insurance amount (PIA).
  • If you claim benefits at your full retirement age—66 for those retiring now, but soon headed up to 67—then you get your full PIA (plus annual increases for inflation) every month for the rest of your life.
  • If you claim your benefits before full retirement age, however, you get a smaller Social Security paycheck every month. And if you claim later, you get a bigger one.1 That means someone who claims their benefits at 62, the earliest age eligible, will receive about 70 percent of their PIA. If you can delay claiming till age 70, then you will receive about 124 percent of your PIA.

To be sure, this strategy is not for everyone. Nor is it without risk. One consideration is that folks need to have accumulated enough wealth that they can “spend-down” some of those assets to live on while they delay claiming their Social Security benefits. (Extending one’s working career is another option for some individuals to achieve the same goal.) Far too many workers struggle to amass these relatively large sums of money—a problem that BPC’s Commission on Retirement Security and Savings is trying to address. Moreover, since the analysis is calculated relative to an average lifespan, this strategy only pays off for someone who lives long enough to collect the Social Security benefits that they went without between ages 62 and 70. In other words, this strategy is probably not appropriate for a younger retiree who is in poor health and does not expect to live much longer.

Nonetheless, in his presentation, Mr. Haley pointed out that a Towers Watson analysis of this strategy suggests that many retirees will come out ahead. For example, Haley found that an average single worker with relatively low lifetime earnings would have to spend about $91,000 to make up for lost Social Security benefits between the years of 62 and 70. But in doing so they would boost their lifetime Social Security benefits by an expected $101,000 – a gain of $10,000 just by rearranging their finances.2

For workers higher in the lifetime income distribution or who have a nonworking spouse, it’s an even better deal—such a household could net up to an extra $87,000 because the delayed retirement credit is applied to both their benefit and to the benefit that their spouse gets.

Beyond the direct financial gain, another advantage of the approach that Haley outlined is that it provides some additional insurance for those who live particularly long lives. Delaying Social Security claiming by spending down retirement assets is essentially equivalent to buying an annuity with those retirement assets. Mr. Haley indicated that “buying” more Social Security benefits in this way is also a good deal compared to trying to buy an annuity on the private market.

We hope that you will continue to follow the work of BPC’s Commission on Retirement Security and Personal Savings and check out some of the other recommendations that the panel of academics, financial executives, plan sponsors, and former regulators featured in the event video. The commission is also developing ideas to help more Americans accumulate the necessary savings to be able to have a financially secure retirement, whether by delaying Social Security or another strategy, when the time comes.

Alex Gold contributed to this post.


1 These benefit levels are still adjusted annually for inflation.

2 The actual benefit they will receive depends on how long they live.

KEYWORDS: SOCIAL SECURITY, COMMISSION ON RETIREMENT SECURITY AND PERSONAL SAVINGS, TOWERS WATSON