Should I Wait to Take Social Security?

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One of the most important questions for people on the cusp of retirement is whether or not to wait to take Social Security benefits. But while many analysts and commentators often cite rigid breakeven analyses as the best way to make this determination, the truth is that it's highly personal to you.

To be clear, there are obvious benefits associated with waiting as long as possible to take Social Security. You can begin to receive them as early as age 62, wait until you turn 70, or you can elect to receive them at any age in between.

The benefit to waiting is that the size of your monthly benefit will grow. This happens for two reasons. First, waiting will likely increase the size of your primary insurance amount -- that is, the amount you're entitled to receive if you apply for benefits at your full retirement age, which is currently between 66 and 67.

Your primary insurance amount is based on an inflation-adjusted average of your income over your 35 highest-earning years. It stands to reason, in turn, that if you're earning more money today than you did three decades ago, then continuing to work will boost your primary insurance amount.

After calculating your primary insurance amount, the Social Security Administration then adjusts the figure based upon the precise age at which you begin receiving benefits. It does this to ensure that people who wait until after they reach full retirement to apply aren't penalized for doing so by getting less in lifetime benefits.

You'll receive more checks if you take benefits early, but each one will be smaller. If you wait until after reaching your full retirement age, on the other hand, then you'll get fewer checks over your lifetime but they'll be larger.

Here's how the Social Security Administration adjusts your primary insurance amount depending on your filing age (this assumes a full retirement age of 67):

Data source: Social Security Administration.

The point to note is that the Social Security Administration has designed its benefit formula in such a way that a person who lives to the average life expectancy should receive roughly the same amount in lifetime benefits irrespective of when they elect to apply for them.

It's accordingly here where the decision about when to receive benefits becomes personal. If you need the benefits to pay your bills and are at least 62 years of age, then you should take them. They are, after all, the proceeds of many decades of your hard work. It's worth noting in this regard that 62 is the most prevalent age at which people apply for benefits.

Alternatively, if you've reached 62 and you don't need them to pay your bills, then your decision should be based on your best assessment of your likely lifespan. If you're healthy and there's reason to believe that you'll outlive the average lifespan used for the purpose of calculating Social Security benefits -- which is 84.3 for males and 86.6 for females (assuming they've already reached the age of 65) -- then you should wait, as doing so will maximize your lifetime benefits. But if you're less sanguine about your longevity, then it would behoove you to take them sooner rather than later.