Social Security at 62 or 70? Why Suze Orman has the stronger case for waiting.

Deciding when to claim Social Security benefits—at age 62 or 70—can significantly impact a retiree's financial future. While opting for benefits at 62 offers immediate cash flow, financial expert Suze Orman argues that delaying benefits until 70 can be more advantageous, particularly for those in good health and with the means to wait.

Financial guru Dave Ramsey advocates for early collection and suggests that retirees invest their Social Security checks if they do not need the money for day-to-day expenses. This strategy aims to create a growing investment account that can enhance retirement income or be passed down to heirs. However, it is crucial to note that merely collecting the payments without investing them does not align with Ramsey's approach. Consistent investing and strong market performance are necessary to offset the reduced lifetime Social Security payout. Additionally, the inherent risks of market fluctuations add a layer of uncertainty that Social Security benefits do not carry. While Ramsey’s method can yield positive results under ideal circumstances, it demands discipline, a stable cash flow, and a tolerance for investment risks.

Conversely, Orman typically recommends that retirees delay their Social Security benefits until they reach 70. Her rationale centers on the importance of securing higher monthly payments that can provide a stable income during the later years of retirement when savings may dwindle, and the possibility of returning to work diminishes. For instance, a retiree who lives into their late 80s or 90s could accumulate significantly more income over their lifetime by waiting. Nevertheless, Orman acknowledges that not everyone is in a position to delay benefits. Factors such as poor health, financial difficulties, and immediate income needs can justify claiming Social Security earlier. Her overall guidance emphasizes that maximizing monthly payments should not compromise financial stability during the waiting period.

The financial implications of claiming Social Security at different ages are profound. For individuals born in 1960 or later, the full retirement age is set at 67. Claiming benefits at 62 results in a 30% reduction in the monthly payment, while waiting until 70 can boost the benefit by 24%. For example, a retiree eligible for $2,000 a month at full retirement age would receive about $1,400 if they claim at 62, whereas waiting until 70 would increase that amount to $2,480. This translates to an additional $1,080 each month, or $12,960 annually, compared to the early claim. Notably, the payment at 70 is approximately 77% larger than that at 62, highlighting the importance of the age at which benefits are claimed.

However, there is a trade-off to consider: while delaying benefits yields a higher monthly payment, it also means forgoing several years' worth of payments. A retiree who claims $1,400 monthly at 62 would receive around $134,400 by the time they reach 70. In contrast, someone who waits would not collect any benefits during those eight years but would then start receiving $2,480 monthly. To break even, the higher payments from waiting would need to compensate for the total amount not collected during the waiting period, which takes about 124 months—around age 80 and four months. By age 85, the retiree who waited could accumulate approximately $446,400 versus $386,400 for someone who started claiming at 62, resulting in a $60,000 advantage for waiting.

One of the most compelling reasons to consider delaying benefits is the 8% delayed retirement credit that Social Security offers. For individuals born in 1943 or later, waiting until 70 can increase their monthly benefit by 24% for each year they delay claiming beyond their full retirement age of 67. Although this appears to be an attractive return, it is different from earning an 8% annual return in an investment account, as the credits are not compounded gains and involve forgoing monthly payments in exchange for a higher future benefit. While investment accounts can grow and leave assets to heirs, they also carry risks, fees, and potential losses. Therefore, a direct comparison between projected investment returns and Social Security's delayed retirement credits may not fully capture the nuances involved.