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Like Graduating College, Delaying Your Social Security Can Increase Your Income

College Grads earn more than high school dropouts. Similarly, folks who postpone Social Security income likely make more than those who take it at the earliest possible age. Let’s take a look:

Graduation

The "How to EDU" web site quotes the following average salaries based off the highest education earned:

  • High school drop outs: $18,734
  • High school graduates: $27,915
  • College grads (with a bachelor’s degree): $51,206
  • Advanced degree holders: $74,60

The differences have grown over the years. According to a Pew Research study, compared to their Boomer grandparents, Millennials will have TWICE the impact on their salaries by postponing the working years and going to college.

Retirement

The math for Social Security recipients is similar. Every year we wait, our income increases by 8% plus, theoretically, an inflation rider. Recently, the inflation adjustments have been zero or close to zero, and so the effective annual growth has been an 8% simple interest rate (1).

The earliest possible age to take social security is 62 but this decision results in a 30% lower payment than Full Retirement Age (FRA). Waiting until age 70, however, gives you an additional 32% income above your FRA. If your benefit at full retirement age were $1,000 per month, this is what it would mean to take your benefit early, on time, or defer until age 70 (1):

  • Age 62: $700
  • Age 66: $1,000
  • Age 70: $1,320

Deferring your Social Security Income is like deferring getting to work by going to college; your income is higher by waiting. Remember that HS dropout who had the cool new car while you were still in school? Did your income catch up and pass him by waiting?

Comparing Graduation with Retirement

The effects of delaying your working years and delaying your retirement years are similar; the longer you wait, the greater the potential payoff (assuming that you live a long life!).

Delayed Gratification Graph

Ask your wealth manager to do the math for you; we have excellent forecasting software. To retire (or go part-time) before you start your Social Security income, likely means withdrawing additional income from your investment accounts. Make sure you know and are comfortable with the rewards and the risks!

Then, ask yourself questions about your quality of life and when you want to enjoy it. Like the drop-out who got the new car, perhaps you'd prefer to spend more now? Or can you foresee yourself living a long time and perhaps regretting spending so much at the comparatively young age of 62?

These are the conversations your financial planners and wealth managers at AIFS are here for. We look forward to the conversation!

(1) Social Security Administration

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