Social Security:

Don’t Take it at the Wrong Time

David Novak Column Header


One thing I have noticed is that people tend to have very strong opinions about
when to take Social Security. Nothing gets the juices flowing like a topic
that includes money, government, and plenty of fear mongering and conspiracy
theories thrown in.

So, with something that stirs up so much emotion, I was not surprised to read
about a recent study that concluded that 96% of retirees choose the wrong year
to tap Social Security.

The report by United Income, a financial planning firm, is based on about
2,000 households that participated in a study by the University of Michigan.

To determine what years were “ideal” for an individual to file for benefits, United
Income estimated retirees’ spending and life expectancy under different market
conditions. A total of 1.1 billion simulations were run (about 500,000 scenarios
for each participant).

The firm concluded that only 4% of retirees are waiting until age 70 to claim
Social Security, while calculating that 57% should be doing so. Additionally, more
than 70% start collecting benefits before turning 64, when the firm determines
that only 6.5% of retirees should be doing so. United Income estimates that
the lost income from these poor decisions results equals about $111,000 per

What conclusions did the researchers draw as to why people made less than
optimal decisions?

One was flat out ignorance—the firm concluded that many retirees did not realize that once they start taking benefits at an earlier age (e.g., 62 or 63), they are permanently locking in a lower benefit for the rest of their lifetimes, as they will not be enjoying the approximate 8% annual increase in benefits for each year they delay taking Social Security.

United Income found that many retirees also don’t understand the rules for married couples, which in certain instances can be somewhat complex.

As we all know, life expectancies have been steadily increasing—for those
currently age 65, life expectancy for men is 84 and for women is 86. This reality,
coupled with the fact that more than half of all retirees rely on Social Security
as their primary source of income, highlights an acute nationwide issue.

This story can have a happy ending. Any good financial planner will have
optimization software that can run scenarios for any individual’s unique situation,
whether they are single, married, divorced, widowed, etc. Keep that in mind
before you make this crucial decision.

David Novak picture


David Novak, CFP® is a Certified Financial Planner™ at Novak & Powell Financial Services in Pinellas County.
Please note: he is not an attorney and this article
should not be construed as one offering legal advice.
For information about investment decisions and
financial planning, contact him at (727) 451-3440.


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