Farrell: To take or not to take early Social Security benefits

In recent columns I've been making the case for why it pays for most people to consider delaying taking Social Security rather than at the first opportunity, age 62.

Simply put, the guaranteed Social Security benefit increases are worth the wait. (There is no additional gain past age 70.) The tactic is part of a larger retirement strategy of planning on earning an income -- typically part-time earnings -- well into the traditional retirement years. The discussion has generated a number of comments. Today I want to look at a common objection: The risk of dying early and the disabilities of ill health.

For example, Steve writes that "before age 62, I had 9 surgeries, 2 of which involved cancer. While I hope to live to a ripe old age, in reality my chances of making 80+ are slim."

James notes: "Your article is typical of the advice given in the media about how one will do so much better working 'an additional eight years'.... Those 'juicy' payouts are for naught, if you are dead!"

Jerome suggests that "a person's health also figures in the equation. A person needs to think, 'Can they do as much at full retirement, for me 66, as they can at 62?'"

These are exactly the kinds of questions anyone nearing retirement should think about. A lot can go wrong. However, with the overall population nearing retirement better educated and healthier than previous generations, I think the right rule-of-thumb is delaying Social Security. The returns on waiting for filing for Social Security are attractive. Anyone married also should take the spousal benefit into account. But even though delay is the starting point, that doesn't mean it's the right choice for everyone.

Take life expectancy, which overall averages about 75 years for men and about 81 for women. Now, if you believe (or hope) that you'll live longer than average, it pays to wait. If you think you're here for a shorter stay than average, you should file early. Yet for those who have reached age 65, average life expectancy for men rises to 82 years and for women 85 years. Average life expectancy for married couples that reach age 65 is even higher. Research shows that people with higher incomes tend to live longer than people with lower incomes. These numbers are all averages. The question is how do you want to play the odds?

The state of your health is a critical part of the equation, of course. For some people working longer isn't practical. Their health has deteriorated enough that they need the income that comes from Social Security. Others may decide their family history suggests filing early rather than later (or vice versa.) These are reasonable decisions.

That said, you can't get rid of uncertainty when making a decision such as when to take Social Security. What you can do is weigh the odds and the trade-offs.

For the typical person nearing the traditional retirement years -- the average baby boomer -- I think the retirement planning equation tilts in favor of filing later. A key question is always "What is the downside? What could go wrong?"

For many aging boomers the bigger risk is not having enough money to enjoy a decent standard of living in their elder years rather than missing out on spending at least some of their Social Security benefit by dying early.

Chris Farrell is economics editor for "Marketplace Money." His e-mail is cfarrell@mpr.org.

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