Should you delay taking Social Security retirement benefits? Here's what to consider
If you have designs on retiring early, you’ve got some decisions to make.
Should you claim Social Security early to pay for living expenses and hold off on withdrawing money from other retirement accounts? Or should you wait to claim Social Security until your full retirement age or even longer, say, 70, when you’ll receive the largest possible benefit? In that case, you'd withdraw money from other retirement accounts to cover living expenses.
But what if you decide to delay claiming Social Security, take money from other accounts, and then, say, the value of your retirement investments drops, and the cost of everything soars?
Sound familiar? It should. Because those plunges and surges are exactly what's happening with markets and inflation.
So with those worrying trends unfolding, will your nest egg run dry?
These are the questions J.P. Morgan Asset Management aimed to answer in a recent study. And here’s what it discovered:
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Plan for longer life expectancy
Average life expectancy, even with the recent decline, has increased dramatically since 1990 but should be viewed as a midpoint, not an endpoint, according to Sharon Carson, the executive director of retirement insights strategy at J.P. Morgan Asset Management.
Given that, you may need to plan on the probability of living much longer – perhaps 35 years in retirement – especially if you’re a nonsmoker in excellent health, said Carson. How long might you live? Check out the Actuaries Longevity Illustrator.
Look at your investment performance
The lower your expected long-term investment return (your profits on it), which is typical as investors get older, and the longer your life expectancy, the more it pays to wait to take your Social Security benefits if you can, Carson said.
So, for instance, a woman who expects a long-term investment return of 5.5% and has a life expectancy of 88 should consider claiming at age 70.
Of course, not everybody can wait to take Social Security. “Some people really need the money,” Carson said. “And there’s nothing wrong with that.”
On average, however, unless you expect to earn high investment returns you’re probably better off waiting to claim Social Security until at least full retirement age, or even age 70, particularly if you have decent health and want that insurance for the long run, said Carson.
Consider inflation
Withdrawing assets in weaker markets early in retirement – what experts refer to as sequence-of-return risk – can ravage a portfolio, according to Carson.