The best reason to take social security long before 70

Social Security offers you the choice of taking your retirement benefits. You can start at age 62, but the longer you wait (until age 70), the higher your monthly check will be. For people born in 1960 or later, the full retirement age is 67. If that describes you, taking your benefit at age 62 will reduce it to 70% of your total projected benefit amount, while waiting until age 70 will increase it to 124% of that amount.

The trade-off is that by starting early you get paid longer, while in the meantime you receive a bigger check every month. At first glance, it may seem better to wait until your 70s start, because in doing so you can get the most out of the system if you live long enough. Still, there are good reasons to start Social Security earlier than that. Of these, perhaps the best reason to take Social Security long before the age of 70 boils down to this simple question: What will you do with the money when you’re older?

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People tend to spend less as they get older

According to data from the Census Bureau and the Bureau of Labor Statistics, people tend to spend less as they age. The table below is based on this data for 2019 (the most recent year available) and shows the average expenditure per household, depending on the age of the reference person in that household:

Data source: Authentication based on data from the 2019 Consumer Expenditure Survey

Spending tends to peak somewhere around this 45 to 54 age bracket, decline as people approach normal retirement age, and then continue to decline with age afterward. . In fact, if you write off health spending – one of the few areas where older people tend to spend more than younger people – the 75 and over age range tends to be the age range. the lowest of all.

When you stop and think about it, it makes sense. When you are new to life, you have the start-up costs associated with your life. Then you might be raising a family. When you are in these peak years, you are likely to have kids in college and / or take care of your own aging parents. Later in your career, these costs will likely start to fade.

Once you retire, your house can be paid off, and you no longer have to cover the costs associated with work, hence the significant drop in expenses around that age of 65. Yet early retirement is often a period of travel, but later in retirement, health or loss of interest can make this trip less feasible or less attractive, leading to further decline in spending.

In other words, if you are going to end up spending more money earlier in your retirement than later, why not have your Social Security money available to you sooner when it can be of greatest use? The lifetime break-even age based on your Social Security claim age is usually around the late 1970s. This means that by making a claim early, you will have more money at the start of your period. retirement when you actually spend it, while by claiming later you will have a higher cash flow when you are less likely to use it.

What about these health expenses?

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Of course, the main financial risk associated with aging is usually the cost of health care – especially assisted living and nursing home care if you need those services. In this regard, it may help to recognize a harsh, cold reality: home nursing is expensive. It’s so expensive that the gap between Social Security at 62 and taking it at 70 probably won’t make the difference in determining whether you can afford to pay it yourself.

Consider that according to LongTermCare.gov, a typical semi-private room in a nursing home cost a resident about $ 6,844 per month in 2016. As of January 2021, the average retiree receives $ 1,543 per month from Social Security. . You could double this typical social security benefit, and it would still not be enough to cover half the monthly cost of a typical nursing home stay.

Therefore, when it comes to home care, the most likely options you will face will be:

• Save enough to self-insure to cover costs.
• Buy a long term care policy when you are young and healthy enough to be affordable.
• Sell ​​things like your home that you no longer need to cover costs.
• Spend enough of your assets for Medicaid to cover these costs for you.

If you’re relying on Medicaid, all that a bigger Social Security benefit will likely mean is that Medicaid will have to take a lot less off your tab. Note that if you are married and only one spouse needs nursing home care, Medicaid allows the still independent spouse to keep a home and enough assets and income to live a modest lifestyle. So even then, relying on Medicaid for your nursing home care will not completely impoverish your spouse.

Make a retirement plan that isn’t too reliant on Social Security

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Typical social security benefits are sufficient to keep the elderly just a little above the national poverty line. These benefits are not – and were never meant to be – your only source of money in retirement. Build your retirement plan around this reality, and your Social Security benefit becomes a supplement and a safety net, rather than a core benefit that you need to maximize just to make ends meet.

This way, you can feel better about taking your Social Security benefits long before the age of 70, when you are still young enough to put the money to good use and enjoy it. When you’re older, less active, and likely spend less overall, you’ll give yourself a better chance of having fond memories and stories to tell. Better yet, you can probably do this while living much of the same lifestyle you would have with the biggest Social Security check you could have gotten in the meantime.