Social Security: Don't Let the "Returns" of Waiting Mislead You

Social Security is a key way for retirees to get valuable income, and many people find that waiting until later to take their Social Security benefits is a smart move. But some experts compare the additional benefits you get by waiting to returns on investments, and that can lead you to make a fundamental mistake in your Social Security decision.

Source: Social Security Administration

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, notes how waiting to take Social Security from age 62 to age 66 helps you avoid a 5% to 7% per-year reduction in benefits, while further delaying benefits from 66 to 70 increases those benefits 8% per year. Yet some people are tempted to compare these figures to returns on investment, comparing those percentages to average gains you'd see in your portfolio. Dan warns that there's a fundamental difference that those calculations overlook: When you delay Social Security, you permanently give up the years of benefits you would have gotten by claiming early. That can still be a smart move in some cases, but you have to be smart with your financial analysis in order to make the right decision for you.

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  • Report this Comment On July 11, 2014, at 10:08 PM, gadfly1000 wrote:

    "When you delay Social Security, you permanently give up the years of benefits you would have gotten by claiming early. "

    That's largely nonsense. You might as well say that when you take benefits early "you permanently give up the higher benefits you would have gotten by claiming later."

    Actuarily, EVERYBODY, on average, gets the same total benefits.

    Besides, if you start early and have a survivor, that person has permanently lower survivor benefits to try to live on.

    Finally, Social Security is much better than investing because you need no capital to start and get 8% per year plus inflation, guaranteed. Also you cannot compare waiting with investing the amount of benefits that would have been received between, say, 62-66 because you don't get that lump sum to invest all at once, but rather monthly. In other words, people who say they could have invested maybe the $60,000 of 4 years' benefits never had those $60,000 in hand so as to do that.

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Dan Caplinger

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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