Like many Americans nearing retirement age, you may be eagerly anticipating the last time that you punch a clock or fight traffic to get into the office before the boss. But if you’re smart, you’ll follow the same savvy strategy that most Americans followed in 2012: waiting until they reach full retirement age to begin collecting benefits. If you are willing and able to do so, you stand to reap substantially larger payments over the course of your retirement.
Delayed gratification and empty coffers
In 2012, 37.2% of men and 42.4% of women took advantage of the option to collect their Social Security benefits at age 62. These figures represent a sharp decline from the 50.3% of men and 54.3% of women who began collecting benefits at age 62 in 2004.
This statistic is even more amazing given that 36% of all Americans surveyed by the Employee Benefit Research Institute in 2014 reported that they had saved only $1,000 or less for retirement. This figure represents a significant increase from the 28% who reported the same paltry retirement savings for the survey conducted in 2013 (source).
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A boost to your social security benefits
Clearly, many Americans are working longer, and if you plan to be one of them, and your health holds up, you will be rewarded for your patience and discipline. Consider these figures. The average worker who first participated in the labor force at age 22 will collect $1,992 per month if he or she begins collecting Social Security at age 62. If the same worker waits until age 70 begin collecting benefits, his or her monthly check increases to $3,425 per month—a nearly $1,500 per month boost (source).
This is because Social Security benefits earn a guaranteed interest rate of 8% for each year that you delay collecting benefits after your full retirement age—up to age 70. That is a hefty rate of return compared to the almost zero interest rate for today’s Treasury bonds. By contrast, workers who begin collecting benefits earlier than their full retirement age suffer a penalty of up to 25%.
For instance, if you would be entitled to $2,000 per month in Social Security benefits at your full retirement age of 66 or 67, your benefit check would be cut to $1,500 per month if you began receiving benefits at age 62. By contrast, you would receive a monthly check of $2,640 if you managed to wait until age 70 to begin drawing against your accumulated Social Security benefits.
Improve your chances of a longer life, and a bigger check
Some factors that cause early retirement are largely out of one’s control. After all, who can predict how long they’ll live, or if they’ll suffer an illness? But there are measures that you can take to improve the odds of a long life. Here are some quick ideas:
- Maintain a healthy diet and weight to help ensure that you will remain in good shape.
- Wear sunscreen when you spend extended time outdoors to protect your skin.
- Get your annual checkups, and never miss a dentist appointment.
- Mingle with friends and family—people with stronger social ties tend to suffer less from isolation and depression, and live fuller lives.
Save as much money as possible so that you will be able to hold off on drawing down on your Social Security benefits even if you are forced to retire early. Consider purchasing an extended disability insurance plan that will provide at least some income if you are unable to continue working due to health reasons. Keeping your bank account (and your body) healthy can help ensure that your retirement will be financially sound.
Audrey Henderson is a Chicagoland-based writer and researcher. She holds advanced degrees in sociology and law from Northwestern University. Her writing specialties are sustainable development in the built environment, policy related to arts and popular culture, socially and ecologically responsible travel, civic tech and personal finance.