Berko: Social security now, or later?
Friday, February 14, 2014 7:00 AM
Dear Mr. Berko:
After 29 years, we sold our business last November to family members for all cash, plus we got a 10-year note that pays us $2,100 each month. Now we’ve retired. I will be 62 this April, and my wife will be 62 this June. We plan to close our condo door and take our 4-year-old motor home across the country to visit family in Missouri and old friends in California and New Mexico. Our big question is when to take our Social Security income checks. Should we take our checks now and get about $1,700 a month, or should we wait until we’re 66, when we’d both get about $2,300 a month?
B.R., Erie, Pa.
Sometimes, relatives are the worst people with whom to do business. It’s good to have all cash, and I hope the 10-year note turns into cash, too. A couple of times a year, I get a letter from a reader who wishes he could turn back the clock. Therefore, I will take that into consideration when answering you.
How much longer do you both plan on living? No, I’m not trying to be gloomy, but this question has nothing to do with buying General Mills, mutual funds, ETFs or U.S. Treasury bonds. Because we are talking about retirement benefits for the rest of your life, the most important factor to consider is how long you expect to live. If you’ve been in the workforce for a minimum of 10 years, you’re eligible for benefits at any time after age 62. The earlier you begin taking your benefits, the less income you’ll get each year; that monthly income increases the longer you wait, up till age 70. The normal retirement age is 66, at which time you are entitled to 100 percent of your stated normal benefits. If you begin taking Social Security benefits at age 62, the government will cut you a monthly check for 75 percent of the normal benefits. But if you can afford to wait till 70, your SS checks will increase to 132 percent of the normal benefits. Each year you wait from age 62 to 70 increases your monthly SS check by 8 percent. And in this market, an 8 percent increase in one’s monthly income each year ain’t chopped liver.
The SS folks don’t give a hoot or a holler when you begin your monthly benefits. Folks who take their incomes at 62 get lower monthly payments for longer periods of time, whereas those who take payments at age 70 get higher monthly payments for shorter periods of time. The costs to the SS system are basically identical. But remember that your benefits increase 8 percent each year you wait from 62. Of course, if you decide to take benefits at 62 and still are working, there are some penalties you must pay, but because you’re retired, that’s not germane. At 66, there are no penalties, but those things can change, as you know.
If you can afford to wait, I recommend you wait until age 70 before taking your benefits, which would give you about $3,200 a month. And I suggest that your wife begin taking her benefits now ($1,700 a month), which should pay for gasoline for the motor home and then some.
If you were to predecease your wife, which husbands usually do, your wife would receive your SS, which is nearly twice as much as hers. Remember that each year you wait increases your monthly benefits by 8 percent. The math is as simple as Simon. If you believe you’ll live to 83, then it would pay to wait and begin collecting 132 percent of your Social Security at 70 rather than collect 100 percent at age 66. The math says it would take about 13 years to make up for the four years’ worth of benefits you would have collected at age 66. So if you lived past 83, you’d hit a grand slam. Your wife would get a healthy income when you kick the bucket, and your higher SS income might be helpful if some of the relatives’ monthly note payments were to get delayed.
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