When Should You Tap Your Retirement Payouts?

Dear Dr. Don,

I like to monitor my investments and cash flow. Still, I don't understand the usual "wisdom" of delaying taking Social Security as long as possible.

At age 60, I'm in excellent health. Life expectancy tables suggest I will live at least until 95. My wife is expected to live until she's 103.

Our combined benefits are estimated at $2,400 a month at 62, $3,200 at 66 and $4,200 at 70.

Every scenario I run suggests that if I delay until age 66 or 70, it takes until the time when I'm 85 for these money streams to catch up with cash flow from the age 62 income streams. The delayed benefits only outpace the age 62 benefits by 15% to 20% by age 95. Why should anyone wait for that small difference?

I don't need the money, but it would allow my Roth IRA, traditional IRA and our other assets to grow because I won't have to use them. So those would be passed on to relatives.

Please help me understand what I am missing.

Thank you,

- Paul Ponders

Dear Paul,

For people who live to their average life expectancy, the Social Security Administration will say that regardless of when you start receiving retirement benefits, you'll receive the same amount in total payments. If that's the case, then why wait?

One reason involves the earnings test. If you continue to work and you're receiving benefits prior to your full retirement age, then Social Security will reduce your benefits based on your age and income. If you will be less than full retirement age for the full year in 2014, the earnings limit is $15,480. Social Security will deduct $1 for every $2 you earn above the annual limit in that situation. The test is different in the year you reach full retirement age.

Your calculated life expectancies far exceed numbers provided by Social Security's Life Expectancy Calculator. Perhaps you used a more sophisticated calculator that adjusts for health, lifestyle and family health history. If fate doesn't interfere, waiting should provide you with more in total payments. In this world of low interest rates, I don't see why you would dismiss a 10% to 15% difference in total payments as trivial.

Why do I suggest that the highest-wage-earning spouse wait until age 70 to take benefits? I want you to get the most out of the delayed retirement credits and, by extension, the retirement benefit. Spousal benefits come into play as well. Assuming that both are full retirement age, the husband and wife must make some decisions. These issues include the timing when one spouse receives spousal benefits, possibly where the higher-earning spouse files and immediately suspends benefits so the lower-earning spouse can get a spousal benefit. Another might be where the lower-earning spouse files for benefits on his or her work record so the higher-earning spouse can receive a spousal benefit until filing for retirement benefits at age 70.

I look at Social Security retirement benefits like an inflation-indexed annuity. It's not as important for couples to try to maximize the total dollar amount of benefits as it is to try to maximize the value of the higher payments to the survivor. That's because the household loses one of its two monthly Social Security checks when a spouse dies.

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