This article appeared originally in the April 2014 Levitt Letter.
Q. Why do you tell those who are eligible for Social Security to delay taking the benefits? Here is how I figure it. My monthly Social Security benefit is $1,230 ($14,760/yr). Suppose my friend could get the same benefit but delays for a year before taking it ($0/yr). He now gets 8 percent more, about $1,328. That’s nice, but at the end of year two I have collected a total of $29,520 and he has collected $15,936.
The breakeven point for total benefits —where his monthly benefits begin to surpass mine—is 12.5 years away! I might have invested some of the first year’s benefit. Or I might not live those 13 years. Bottom line, I say take the benefit while you can. Do you agree?
A. Let’s rely on probabilities rather than intuition. Whether you make the bet depends very much on your income, gender, and race—factors that influence life expectancy.
Consider these statements (in bold) from National Vital Statistics Reports: At age 66, Americans collectively have a life expectancy of 17.8 years (to age 83.8). In our scenario above, with the break-even point 12.5 years away, deferral seems a pretty good bet.
The life expectancy for 66-year-old white males is 16.4 years. Again, deferral is smart for them.
Black men have a life expectancy of 14.5 years. The odds are still favorable, but it would not be totally foolish to bet the other way.
White women age 66 can expect to live another 19.0 years. So, deferral is better for them.
Black women have a life expectancy of 17.9 years. Deferral is advisable for them too.
Social Security actuaries have found that men in the top half of the Social Security wage scale now have life expectancies 5.4 years longer than men in the bottom half. So, if you earn an above-average income, you increase your life expectancy.
How much would more money mean to you in the future than today? Most people want to eat dessert first: “I’d rather have more income this year than a bit more income for the rest of my life. I know I can enjoy spending the money today. I don’t know if I will 12 years from now.”
That’s a question you’ll have to answer for yourself. There is treasure to be desired and oil in the dwelling of the wise; but a foolish man spendeth it up. —Proverbs 21:20