Ask the Blogger: How Long Do I Wait Before Collecting Social Security?

If you're still working, and plan to for a while, when's the right time to file?

Dear Blogger:

I am 66 (as of May this year) and thus eligible for “full retirement” under Social Security; the payment is estimated at about $2029 per month. If I wait until age 70 it would be about $2691 per month. I calculate that it would take until 2031 before deferred retirement benefits would exceed the total I could accrue by filing now. In the meantime I am still working, earning about $35-40K per year; I expect to keep on working until at least age 70. I wouldn’t need the extra Social Security to live on, at least until I can no longer work.

My question is, would it be a good idea to file now? I should mention that I can expect to live well into my 80s, maybe more, given my family history. What do you think?

Passenger on the SS Secure

Dear Passenger:

There are more downsides than there should be to retiring later. If you keep working, you keep paying Social Security taxes. For men, the marginal return you get on those taxes is often low-to-nonexistent. You're also, well, still working.

But despite the downsides, it's usually a smart choice, which it sounds as if you've discovered. Almost everyone earns more by working than they would by collecting Social Security, and retiring is often less fun than it sounds like for people who are still active and energetic, and yet not actually zillionaires who can afford to spend their golden years running their family foundation and perfecting their yachting skills. Most retirees end up watching an inordinate amount of television, which is why so many of the ads that run on daytime cable center around funeral insurance and dodgy gold buying schemes. And while it's hard to identify which way the causality goes, there's at least suggestive evidence that retiring has adverse effects on your health. Downshifting, which is what it sounds like you've done, is a much better idea: give yourself some extra free time to travel or play with grandchildren, but don't leave the workforce entirely.

If you're still working, it usually makes sense to delay collecting benefits. Social Security is designed to be actuarially neutral, which is to say that if you live an average lifespan, you will collect the same amount of money over your retirement no matter what age you retire. That's why you get higher benefits if you wait. If you start collecting now, you're essentially taking more of the social security dollars you can expect to collect while your income is still high--which means you're paying more tax on those benefits. Better to wait until you stop working, when your income, and tax rate, will presumably be lower.

In your case, it's an especially sensible decision, because your family history suggests that you will live longer than the average lifespan which Social Security uses to calculate benefits. If you told me that everyone in your family drops dead at the age of 72, I'd tell you to hustle down to the Social Security office and file ASAP. But while there are no guarantees, with your family history the odds are that you'll do better by waiting.