Estate Planning: Wait Until 70 to Draw Social Security?

Many of the clients who come in to our offices are either creating or updating their Living Trusts. They’re often older, and if not retired, they’re thinking about it. As a result, we hear many concerns about healthcare, social security, disability insurance and hospice.

Jane Bryant Quinn discusses timing of Social Security payouts

Jane Bryant Quinn, the personal finance expert who writes for the AARP, discusses when to start taking your social security payments in her article, Don’t Rush Social Security. Many people start at 62 because they need the money; others wait until they’re 67. But Quinn encourages people to wait until they’re 70 because their monthly payout will be a whopping 76% higher than if they’d begun receiving their payments at 62. For those who are married, waiting will also provide the surviving spouse with a larger survivor’s benefit.

What about the strategy of drawing social security at 62 and investing the money?

Let’s say your circumstances and investments allow you to make a choice: Would you be better off drawing Social Security at 62 and investing the payments? One expert, Bill Reich­enstein, a professor of finance at Baylor University, has created a powerful Social Security calculator that allows him to apply filters, such as the effect of taxes on the additional income, probable return on investments, and cost-of-living increases. He created various scenarios, taking into account the average life expectancy of a 62-year-old, and found that it’s better to wait until you’re 70.

For instance, if you take your Social Security benefit at 62 and start growing the funds through investments, how long would it last if you then started drawing from that fund at age 70 at the monthly amount you would have gotten if you’d waited? Unfortunately, not long enough. Your fund would be gone by the time you reached age 81. That may be average life expectancy, but 40% of people live longer than that and half of those will live into their 90s. With the fund now spent, you will have to do with the reduced benefit you took at age 62.

A valid case for drawing Social Security at 62

If your health is failing and you are not worried about a spouse getting a larger survivor’s benefit, the best decision may be to start drawing at age 62. If you are not going to need the benefit and want to start drawing and investing it, you could leave a fund for your heirs. Yet for most of us, good judgment and Bill Reich­enstein prevail; it’s difficult to beat the system. Investing those Social Security benefits taken at 62 will not beat the lifetime return of those benefits you draw at age 70.

Creating a Living Trust is an important part of your retirement planning. Contact California Document Preparers at one of our three Bay Area offices today to schedule an appointment. We’re helpful, compassionate and affordable.