Social Security offers a choice when it comes to receiving your retirement benefits. You can start at 62, but the longer you wait (until you are 70), the bigger your monthly check will be. For people born in 1960 or later, your full retirement age is 67. If that describes you, receiving your benefit at age 62 will reduce you to 70% of the total projected benefit amount, while waiting until age 70 will increase to 124% That amount.
The payoff is that when you start early, you get paid for longer, while when you wait, you get a bigger check each month. Superficially, it may seem better to wait until the age of 70 begins, as doing so can make you more money from the system if you live long enough. Still, there are good reasons to start Social Security before that. Of these, perhaps the best reason to enroll in Social Security long before the age of 70 is summed up by this simple question: what will you do with the money when you are older?
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People tend to spend less as they get older
According to data from the Census Bureau and the Bureau of Labor Statistics, people tend to spend less as they get older. The table below is based on this data for 2019 (the most recent year available) and shows the average expenditure per household, based on the age of the reference person in that household:
|
Was |
Total Spending |
Health expenses |
Non-health spending |
|---|---|---|---|
|
Under 25 |
$ 39,293 |
$ 1,510 |
$ 37,783 |
|
25-34 |
$ 57,128 |
$ 3,162 |
$ 53,966 |
|
35-44 |
$ 74,890 |
$ 4,822 |
$ 70,068 |
|
45-54 |
$ 77,356 |
$ 5,345 |
$ 72,011 |
|
55-64 |
$ 69,494 |
$ 5,958 |
$ 63,536 |
|
65-74 |
$ 55,087 |
$ 6,772 |
$ 48,315 |
|
75 and above |
$ 43,623 |
$ 6,914 |
$ 36,709 |
Data source: authorship based on data from the Consumer Expenditure Survey 2019
Spending tends to peak around the 45-54 age group, decreases as people approach the standard retirement age, and continues to decline with age after that. In fact, if you neglect health care costs – one of the few areas where older people tend to spend more than younger people – the age group over 75 tends to be the one that spends the least.
When you stop and think about it, it makes sense. When you are starting out in life, you have the initial expenses associated with your life. So, you may be creating a family. When you are in these peak spending years, you are likely to have children in college and / or are looking after your own elderly parents. Later in your career, these costs are likely to begin to decrease.
After you retire, your home can be paid for, and you no longer need to cover the costs associated with work, hence the significant drop in spending around that 65-year mark. Still, early in retirement it is often time to travel, but later in retirement health worsens or loss of interest can make travel less viable or attractive, leading to further declines in spending.
In other words, if you are going to end up spending more money before your retirement than later, why not have Social Security money available to you before, when it can be most useful? The lifetime balance age based on your Social Security application age is usually around 70 years or more. This means that when you claim in advance, you will have more money at the beginning of your retirement, when you are actually spending, while claiming later, you will have a higher cash flow when you are less likely to use it.
What about these health expenses?
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Obviously, the big financial risk of aging is usually the cost of health care – particularly assisted living and home nursing care, if you need these services. In this respect, it can be useful to recognize a cold and harsh reality: care in nursing homes is expensive. It is so expensive that the difference between taking Social Security at 62 and 70 is unlikely to make the difference that will determine whether you can afford it yourself.
Consider that, according to LongTermCare.gov, a typical semi-private nursing room cost a resident about $ 6,844 per month in 2016. In January 2021, the average retiree received $ 1,543 per month from Social Security. Could you Double that typical Social Security benefit, and it still wouldn’t be enough to cover half the monthly cost of a typical nursing home period.
As a result, when it comes to nursing home care, the most likely options you will face will be:
- Save enough to self-insure to cover costs
- Buy a long-term care policy when you are young and healthy enough to be affordable.
- Sell assets, such as your home, that you will no longer need to cover costs.
- Spend your assets enough that Medicaid will cover these costs for you.
If you are counting on Medicaid, all that a larger Social Security benefit is likely to mean is that Medicaid will have to pay much less from your account. Note that if you are married and only one spouse needs care in the nursing home, Medicaid allows the independent spouse to maintain a home and sufficient assets and income to live a modest lifestyle. So even then, relying on Medicaid to care for your nursing home will not completely impoverish your spouse.
Make a retirement plan that doesn’t rely heavily on Social Security
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The typical Social Security benefits are sufficient to keep the elderly slightly above the national poverty line. These benefits are not – and never intended to be – your only source of money in retirement. Build your retirement plan around that reality, and your Social Security benefit becomes a complement and safety net, rather than a critical benefit that you need to maximize just to survive.
That way, you’ll feel better about receiving Social Security benefits well before your 70s, when you’re still young enough to put them to good use and enjoy the money. When you are older, less active and probably spending less, you are more likely to have great memories and stories to tell. Better yet, you will probably be able to do this while still basically living the same lifestyle you would have with the larger Social Security check you could have received while waiting.