Social Security Delay: Why Waiting Until 70 is Your Best Investment (8% Guaranteed)
Social Security Delay: Why Waiting Until 70 is Your Best Investment (8% Guaranteed)
EXECUTIVE SUMMARY
- The Mechanism: For every year you delay taking Social Security past your Full Retirement Age (FRA, usually 67), the government increases your benefit by 8% per year (simple interest) until age 70. This is called the “Delayed Retirement Credit.
- Authority Baseline: This analysis follows the benefit calculation rules established by the Social Security Administration, which confirm that claiming at 70 results in a monthly check 76% higher than claiming at 62.
- Scope Limitation: This strategy applies to healthy individuals expecting to live past age 80. If you have a terminal illness or short life expectancy, claiming early (62) is mathematically superior.
- Anti-Exaggeration: The 8% is not an investment return you can withdraw; it is an increase in an annuity payment. It dies when you die (unless your spouse inherits it).
Investing in the S&P 500 is risky. Buying an annuity is expensive. But delaying Social Security is risk-free, inflation-protected, and tax-efficient. Where else can you buy a government-guaranteed bond paying 8% real yield? According to Team BMT Analysis, delaying Social Security is the single most efficient way to buy “Longevity Insurance. Source: SSA.gov / J.P. Morgan Guide to Retirement
Scenario: You retire at 62. Benefit at 62 is $1,500. Benefit at 70 is $2,640.
- The Trap: Taking $1,500 at 62 because “I need income now.”
- The Bridge: Instead of taking Social Security, withdraw $1,500/month from your 401(k) from age 62 to 70.
Logic: You are spending your 401(k) (which has market risk) to buy a larger Social Security check (which has no risk). - Result: At 70, you stop 401(k) withdrawals and turn on the $2,640 Social Security. You have significantly de-risked your late retirement.
Benefit Comparison: 62 vs. 67 vs. 70
| Claiming Age | Monthly Benefit (% of FRA) |
|---|---|
| Age 62 (Early) | 70 |
| Age 67 (Full / FRA) | 100 |
| Age 70 (Delayed) | 124 |
*Chart Note: The jump from 62 to 70 is a 76% permanent raise. In a world of 4% interest rates, locking in an 8% annual increase is an arbitrage opportunity.
CRITICAL SCENARIO: The “Survivor Benefit” Factor
Protecting the lower-earning spouse.
| Situation | Higher Earner’s Decision | Impact on Survivor |
|---|---|---|
| Claims Early (62) | Gets smaller check. Dies at 75. | Spouse inherits the SMALL check forever. (Poverty risk). |
| Claims Late (70) | Gets max check. Dies at 75. | Spouse inherits the MAX check forever. (Security). |
Execution Protocol
Most people calculate the “Breakeven Age” (usually ~80) and say “I might die before 80, so I’ll take it now.” This is wrong. You don’t insure for the average outcome; you insure for the tail risk (living to 95).
Decision Order: Assess Health/Longevity โ Consider Spouse’s Needs โ Check Liquidity for Bridge Period.
Designate a portion of your IRA/401(k) to fund your lifestyle from age 62 to 70. This creates the “income” you need while waiting.
Tax Bonus: Spending Pre-Tax 401(k) money in your 60s reduces your future RMDs (Required Minimum Distributions) at age 73. See RMD Death Spiral (#380).
You must proactively file. It doesn’t start automatically. If you forget, they will pay you up to 6 months of retroactive benefits, but you lose the delay credits for those months.
Fail Condition: Waiting past 70. There is zero benefit to delaying past age 70. Credits stop accumulating.
WEALTH STRATEGY DIRECTIVE
- Do This: If you are the higher earner in a married couple, delay until 70. This maximizes the survivor benefit, which is the cheapest life insurance you can buy.
- Avoid This: The “Bird in the Hand” fallacy. Taking $1 now vs. $2 later is only smart if you are starving. If you have savings, buy the $2.
Frequently Asked Questions
What if Social Security goes bankrupt?
Even in the worst-case scenario (Trust Fund depletion in 2033), tax revenue covers ~80% of benefits. A 20% cut to a “Max Check” at 70 is still larger than a 20% cut to a “Min Check” at 62.
Can I suspend benefits?
Yes. If you claimed at 62 and regret it, once you reach FRA (67), you can “Suspend” benefits to earn delayed credits until 70. It allows a do-over.
Does working affect benefits?
If you claim early (62-67) and keep working, the “Earnings Test” may withhold your benefits ($1 for every $2 earned above ~$22k). Delaying avoids this penalty entirely.