Planning to
take Social Security early and invest it? Here's why you should think twice.
Stacy Johnson • June
1, 2020
Welcome to the “2-Minute
Money Manager,” a short video feature answering money questions submitted by
readers and viewers.
Today’s question is about
Social Security; specifically, whether you’re better off taking Social Security
at full retirement age and investing it, or simply waiting to take it at age
70.
Watch the following
video, and you’ll pick up some valuable info. Or, if you prefer, scroll down to
read the full transcript and find out what I said.
You also can learn how to
send in a question of your own below.
For more information,
check out “A Simple Way to Maximize Your Social Security”
and “7 Social Security Blunders That Can Ruin Your Retirement.” You can also go to the
search at the top of this page, put in the words “Social Security” and find
plenty of information on just about everything relating to this topic.
And if you need anything
from tips on finding the best CD rates to finding the best financial advice, be sure and
visit our Solutions Center.
Got a question of your
own to ask? Scroll down past the transcript.
Don’t want to watch? Here’s what I said in the video
Hello, and welcome to
your “2-Minute Money Manager.” I’m your host, Stacy Johnson, and this answer is
brought to you by Money Talks News, serving up the best in personal
finance news and advice since 1991.
Today’s question comes
from Anonymous:
“I’m in good health,
enjoying my work in real estate, and I have no interest in retiring. So, I can
choose NOT to take Social Security at 66 and wait until 70. But is that
financially wise? Instead, I could take my retirement at 66 and invest
that money in any number of stocks that pay high dividends.”
OK, Anonymous, let’s
discuss.
Take it early, or wait?
Let’s start with a quick
review of how Social Security works.
The earliest you can
start Social Security is age 62: about one-quarter of Americans start taking it
at that age. Most people, however, take it at their full retirement age, which
is between 65 and 67, depending on when you were born. And some people wait until
the last possible moment, age 70, to take it.
When you take it early,
at age 62, you’ll get about 25% less per month for life than you would by
waiting until your full retirement age. When you wait until 70, your monthly
checks will be about one-third bigger for life.
Since Social Security
provides monthly checks for life, you’ll get more checks over your lifetime if
you start early and fewer if you start at 70, which makes sense. The system is
designed so that theoretically, you’ll get the same total amount whether you
start early, on time or later.
But that’s theoretically.
If you live longer than the average life expectancy, you’re better off taking
it late. If you live a shorter life, you’ll be better off taking it early.
Other things also matter.
For example:
·
Do you hate your job? Take Social Security early and quit.
·
Do you love your job? Work until 70 and get a fatter check.
·
Do you need the money? Take Social Security early.
·
Don’t need the money? Wait.
Take it and invest it?
As you can see, the early
versus late argument isn’t black and white. Which brings us back to today’s
question: If you won’t need the income until you’re 70, should you take
Social Security at your full retirement age and invest it? Or, are you better
off simply waiting for a bigger check at age 70?
Here’s the deal,
Anonymous: For every year you wait after your full retirement age, your monthly
Social Security check will go up by about 8%. So, that’s the return you’ll have
to beat if you take your benefits and invest them.
That’s not compounded,
however. If you invest and compound, you won’t have to earn quite that much to
beat Social Security’s automatic increase.
Getting a return anywhere
close to 8% annually isn’t easy, and nearly impossible without risk. Also,
because we’re people and not robots, it’s possible we may spend a couple of
those monthly checks and not invest them.
Waiting until 70 will
also provide a bigger survivor’s benefit for your spouse when you die, since
upon your death, your spouse is entitled to the greater of his or her own
benefit or 100% of yours.
Then there’s the
cost-of-living adjustment, or COLA. Since this increase is a percentage of
monthly checks, the bigger the check, the bigger the increase.
Finally, Social Security
not only provides a stable, predictable benefit increase as you wait, but it
also does it without risk, knowledge, study or luck. Beating 8% in the market
may require all that stuff.
There are other factors
as well, like income taxes. But if you want a bottom line, it’s this: If you
plan on a longer-than-normal life, I’d suggest waiting till age 70 for Social
Security rather than taking the money before you need it and investing it.
Hope that answers your
question, Anonymous.
Now, what about you? Got a
question of your own to ask? Then do what Anonymous did: Simply hit “reply” to
any Money Talks email newsletters and fire away. I can’t answer every question,
but I do my best.
And if you’re not getting
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you richer.
I’m Stacy Johnson. See
you here next time!
About me
I founded Money Talks
News in 1991. I’m a CPA, and I’ve also earned licenses in stocks, commodities,
options principal, mutual funds, life insurance, securities supervisor and real
estate.
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