The best reason to take social security well before 70

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Social Security offers you the choice of taking your retirement benefits. You can start at age 62, but the longer you wait (until age 70), the higher your monthly check will be. For people born in 1960 or later, their full retirement age is 67. If that describes you, taking your benefit at age 62 will reduce it to 70% of your projected full benefit amount, while waiting until age 70 will increase it to 124% of that amount.

The trade-off is that by starting early you get paid longer, while in the meantime you get a bigger check each month. At first glance, it may seem better to wait until the onset of age 70, because in doing so, you can get the most out of the system if you live long enough. Still, there are good reasons to start Social Security earlier than that. Of these, perhaps the best reason to take Social Security long before the age of 70 boils down to this simple question: what will you do with the money when you’re older?

Image source: Getty Images.

People tend to spend less as they get older

According to Census Bureau and Bureau of Labor Statistics data, people tend to spend less as they age. The table below is based on this data for 2019 (the most recent year available) and shows the average expenditure per household, depending on the age of the reference person in that household:

Age

Total expenses

Health expenditure

Non-health expenditure

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 years and over

$ 43,623

$ 6,914

$ 36,709

Data source: author based on data from the 2019 Consumer Expenditure Survey

Spending tends to peak somewhere around this 45 to 54 age bracket, decline as people approach normal retirement age, and then continue to decline with age afterward. . In fact, if you forgo spending on health care – one of the few areas where older people tend to spend more than younger people – the 75 and over group tends to be the least spending age group. all.

When you stop and think it makes sense. When you are new to life, you have the start-up expenses associated with your life. Then you might be raising a family. When you are in those peak years, you probably have kids in college and / or are looking after your own aging parents. Later in your career, these costs will likely start to fade away.

Once you retire, your accommodation can be paid for and you no longer have to cover work-related costs, hence expenses drop significantly around age 65. Yet, early in retirement is often the time to travel, but later in retirement, health or a loss of interest can make travel less feasible or attractive, resulting in further spending cuts.

In other words, if you are going to end up spending more money earlier in your retirement than later, why not dispose of your Social Security money earlier when it may be more useful? The lifetime equilibrium age based on your Social Security claim age is usually around the late 1970s. This means that by claiming earlier, you will have more money at the start of your retirement when you retire. actually spend it, while claiming later will have that higher cash flow when you’re less likely to use it.

What about these health expenses?

Doctor with patient.

Image source: Getty Images.

Of course, the big financial risk associated with aging is usually the cost of health care – especially assisted living and nursing home care if you need those services. In this regard, it may be helpful to recognize a cold and harsh reality: nursing home care is expensive. It’s so expensive that the gap between taking Social Security at 62 and taking it at 70 is unlikely to make the difference in determining whether you can afford to pay yourself.

Consider that according to LongTermCare.gov, a typical semi-private room in a nursing home cost a resident about $ 6,844 per month in 2016. As of January 2021, the average retiree was receiving $ 1,543 per month from Social Security. You could double this typical social security benefit, and that would still not be enough to cover half the monthly cost of a typical nursing home stay.

Therefore, when it comes to nursing home care, the most likely options you will face will be:

  • Save enough to self-insure and cover costs.
  • Buy a long-term care policy when you’re young and healthy enough to be affordable.
  • Sell ​​things like your home that you no longer need to cover the cost.
  • Spend enough of your assets for Medicaid to cover these costs for you.

If you’re relying on Medicaid, all that a bigger Social Security benefit will likely mean is that Medicaid will have to pick up a lot less off your tab. Note that if you are married and only one spouse needs nursing home care, Medicaid allows the spouse who is still independent to maintain a home and enough assets and income to lead a modest life. So even then, relying on Medicaid for your nursing home care will not completely impoverish your spouse.

Make a retirement plan that doesn’t depend too much on social security

Senior couple drinking wine and smiling.

Image source: Getty Images.

Typical social security benefits are sufficient to keep the elderly just a little above the national poverty line. These benefits are not – and were never intended to be – your only source of retirement money. Build your retirement plan around this reality, and your Social Security benefit becomes a supplement and a safety net, rather than a core benefit that you need to maximize just to make ends meet.

This way, you can feel better about taking your Social Security benefit long before the age of 70, when you are still young enough to put the money to good use and enjoy it. When you’re older, less active, and likely spend less overall, you’ll give yourself a better chance of having fond memories and stories to tell. Better yet, you will likely be able to do this while living much of the same lifestyle you would have with the biggest Social Security check you could have gotten in the meantime.

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