Why Waiting to Claim Social Security Benefits Might Cost You More Than You Think

"You've probably heard that it's best to take Social Security benefits later rather than sooner. After all, delaying gratification will get one a bigger paycheck at some point down the road, right? While the decision to delay, perhaps by as much as possible, is a right move for some, especially those who don't need the extra cash earlier on in their retirement, I do think that there really is no one-size-fits-all answer when it comes to the "perfect" time to start receiving Social Security benefits."

"Indeed, every year that's delayed up to age 70 will give one an 8% raise. And while an 8% return that's free from risk is pretty good (actually, it's very good, especially considering the downside potential of most higher-return risky assets), even though it's slightly less than the longer-term average return offered by equities, one must also consider one's own circumstances. At the end of the day, money in the present is worth far more than the same amount of money in the future."

Delaying Social Security benefits yields roughly an 8% increase in monthly payments for each year postponed up to age 70. An 8% risk-free increase is attractive compared with many investments, though it is slightly below long-term equity returns. Present money typically holds more value than the same nominal amount received later, so personal discount rates matter. Individuals in their early 60s may find the incremental 8% insufficient to justify postponement, especially given potential declines in health or mobility before age 70. The primary cost of waiting is the opportunity cost of foregone benefits and financial needs during early retirement.

Read at 24/7 Wall St.