Should we postpone Social Security?

A couple nearing retirement finds that delaying Social Security gives them 22% more to spend every year starting today!

The Facts

Married couple, Age: 61
Pat's earnings: $80,000
Chris's earnings: $80,000

401K savings: $600,000
Regular savings: $400,000

Pat and Chris are thinking about retiring at the end of the year. Some of their friends tell them to take Social Security at age 62 and others tell them to wait until age 70. Their financial planner mostly wants to talk about how they invest their retirement assets.

They know that waiting longer to file for Social Security benefits is usually a good idea, but how much of a difference does it actually make?

The Base Plan

Filing at Age 62

Pat and Chris create a Base Plan and learn that with the reduced Social Security benefit of $15,735 each, they can have a steady $56,105 in annual discretionary spending each year through age 100.

Discretionary spending is the amount left over to spend each year after paying fixed expenses: taxes, housing costs, and Medicare Plan B costs (costs that typically rise from year to year). This amount is in "today's dollars," which means it's adjusted for inflation each year and it remains steady even though fixed spending changes. Of course the Social Security benefit is not their only income. They also have withdrawals from their 401K and some spending from their non-retirement assets. But the bottom line is that the program shows them how they can spend an inflation-adjusted $56,105 each year after fixed expenses.

The What-If Plan

Filing at Age 70

If they run the program again but this time indicate that they are willing to wait until age 70 to collect their benefits, they learn they can have $68,742 in discretionary spending. That's $12,637 more to spend each year, adjusted for inflation, for the rest of their lives—22% more to spend each year without taking any extra financial risk.

Is the Plan Realistic?

Many people can't afford to wait until age 70 to receive their Social Security. Do Pat and Chris have to tighten their belts prior to age 70?

In this case, no, they can have a smooth, even living standard from age 62 through 100 by using the custom saving and withdrawal strategy provided by MaxiFi Planner. At age 70 they will each collect $27,567 annually in Social Security. Pat and Chris are fortunate to have saved significant non-retirement assets and their model has them withdraw some of this money each year to "bridge the gap" while they wait for the higher Social Security benefits to kick in.

The Bottom Line

MaxiFi Planner uses your actual earnings history to get an accurate Social Security benefit calculation. Of course your future earnings projections (which are also used in the Social Security calculation) may be your best guess, but in this case Pat and Chris only plan to work one more year—so the calculation is spot on. If you are not like Pat and Chris (who have enough in non-retirement savings to bridge the gap) MaxiFi Planner will let you model using some special withdrawals from retirement assets for this purpose to create smooth discretionary spending before and after you begin collecting Social Security.

In addition, MaxiFi Planner's built-in Social Security maximization feature allows Pat and Chris to check to be sure there aren't even better dates to file for benefits—automatically analyzing potentially thousands of different date combinations to find the best strategy.

Every household economy is unique, and MaxiFi software will help you to explore many options. But most importantly, you are not comparing "theories" or "rules of thumb," you are using accurate numbers to compare the real, annual impact on your living standard.