Social Security offers you a choice when it comes to taking your retirement benefits. You can start as early as age 62, but the longer you wait (up until age 70), the higher your monthly check will be. For people born in 1960 or later, their full retirement age is 67. If that describes you, taking your benefit at 62 will lower it to 70% of your projected full benefit amount, while waiting until age 70 will increase it to 124% of that amount.
The trade-off is that by starting early, you get paid for longer, while by waiting, you get a larger check each month. On the surface, it might seem better to wait until age 70 start, since by doing that you can make the most money from the system if you live long enough. Still, there are good reasons to start Social Security earlier than that. Of those, perhaps the best reason to take Social Security long before age 70 is summed up by this simple question: what will you do with the money when you’re older?
People tend to spend less as they age
According to data from the Census Bureau and the Bureau of Labor Statistics, people tend to spend less as they age. The table below is based on that data for 2019 (the most recent year available) and shows the average spending by household, based on the age of the reference person in that household:
| Age | Total Spending | Healthcare Spending | Non-Healthcare Spending |
|---|---|---|---|
| Under 25 | $39,293 | $1,510 | $37,783 |
| 25-34 | $57,128 | $3,162 | $53,966 |
| 35-44 | $74,890 | $4,822 | $70,068 |
| 45-54 | $77,356 | $5,345 | $72,011 |
| 55-64 | $69,494 | $5,958 | $63,536 |
| 65-74 | $55,087 | $6,772 | $48,315 |
| 75 and up | $43,623 | $6,914 | $36,709 |
Spending tends to peak somewhere around that 45-54 age range, decline as people approach standard retirement age, and then continue falling with age after that. In fact, if you back out healthcare expenses — one of the few areas where older people tend to spend more than younger ones — the 75-plus bracket tends to be the lowest-spending age bracket of all.
When you stop and think about it, that makes sense. When you’re first starting out in life, you have the start-up expenses associated with your life. Then, you may be raising a family. When you’re in those peak spending years, you’re likely to have kids in college and/or be taking care of your own aging parents. Later in your career, those costs will likely start to fade away.
Once you reach retirement, your home may be paid for, and you no longer have to cover the costs associated with working, hence the significant decline in spending around that age 65 mark. Still, early in retirement is often a time for travel, yet later in retirement either health declines or a loss of interest may make that travel less feasible or appealing, driving the further declines in spending.
In other words, if you’re going to end up spending more cash earlier in your retirement than later in it, why not have your Social Security money available to you sooner when it can be of more use? The lifetime breakeven age based on your Social Security claiming age is generally around your late 70s or so. That means by claiming early, you’ll have more money early in your retirement when you’re actually spending it, while by claiming later you’ll have that higher cash flow when you’re less likely to use it.
What about those healthcare expenses?
Of course, the big financial risk in aging is generally the cost of healthcare — particularly assisted living and nursing home care if you need those services. On that front, it may be helpful to recognize a cold, hard reality: Nursing home care is expensive. It’s so expensive that the gap between taking Social Security at 62 and taking it at age 70 is probably not going to be the difference maker that determines whether you can afford to pay for it on your own.
Consider that according to LongTermCare.gov, a typical semi-private Nursing Home room cost a resident around $6,844 per month in 2016. As of January 2021, the average retiree gets $1,543 per month from Social Security. You could double that typical Social Security benefit, and it still wouldn’t be enough to cover half the monthly cost of a typical Nursing Home stint.
As a result, when it comes to Nursing Home care, the most likely options you face will be:
- Save enough to self-insure to cover the costs.
- Buy a Long Term Care policy when you’re young and healthy enough so it’s affordable.
- Sell assets like your home that you’ll no longer need in order to cover the cost.
- Spend down your assets enough so that Medicaid will cover those costs for you.
If you’re relying on Medicaid, all that a larger Social Security benefit will probably mean is that Medicaid will have to pick up that much less of your tab. Do note that if you’re married and only one spouse needs Nursing Home care, Medicaid allows the still independent spouse to keep a home and enough assets and income to live a modest lifestyle . So even then, relying on Medicaid for your Nursing Home care won’t completely impoverish your spouse.
Make a retirement plan that doesn’t depend too heavily on Social Security
Typical Social Security benefits are enough to keep seniors just a bit above the national poverty line level . Those benefits are not — and never were intended to be — your only source of money in retirement. Build your retirement plan around that reality, and your Social Security benefit becomes a supplement and a safety net, rather than a critical benefit you have to maximize just to make ends meet.
That way, you can feel better about taking your Social Security benefit long before age 70, while you’re still young enough to make good use of and enjoy the money. When you’re older, less active, and likely to be spending less overall, you’ll give yourself a better chance of having great memories and stories to tell. Even better, you’ll probably be able to do so while still living largely the same lifestyle you would have with the bigger Social Security check you could have gotten from waiting.
