“Most consumers, advisors and academics think there is no strategy related to when a single person should take Social Security,” Meyer says. “Common theory is that a person receives less if they start early and more if they delay.”
A person receives approximately 75 percent of their primary insurance amount (depending on when they were born) if they start at age 62 and 132 percent if she delays to age 70. With an average break-even age of 80, a person has to live to be more than 80 to make it worthwhile to delay getting benefits until they are 70.
But the increases are not steady. Between age 62 and 63, monthly benefits increase 0.42 percent of the primary insurance amount per month. Between age 63 and 66, monthly benefits increase 0.56 percent of the primary insurance amount per month. And between ages 66 and 70 monthly benefits increase 0.67 percent of primary insurance amount per month.
“This uneven playing field creates opportunities to optimize benefits,” Meyer says.
Assuming a full-retirement age of 66, the break-even point for delaying benefits from 62 to 63 is 78 years. But the break even point of delaying benefits from 63 to 64 actually goes down to 76 years. The break even point then climbs if benefits are delayed until late in the 66th year, when the break-even point drops again for a few months. The break-even point then climbs again for each delay in receiving benefits until the person hits 70.
“So here is the advice,” says Meyer. “To maximize the present value of benefits, a single person should never claim benefits between 62 years and one month and 63 years and 11 months or between 65 years and five months and 66 years and seven months.”
Full retirement age of 66 years is in the middle of times when a single recipient should never take benefits, he says. Benefits should be taken at the beginning of a monthly percentage increase to maximize benefits and add a longevity hedge, Meyer says.
Meyer and his colleague Dr. William Reichenstein, head of research for Social Security Solutions and holder of the Pat and Thomas R. Powers Chair in Investment Management at Baylor University, have developed www.SSAnalyzer.com to help advisors determine their clients’ optimum time for starting Social Security benefits.