Should I Delay Social Security and Rely on My IRA for the Next 5 Years?

A man calculates his Social Security benefits to determine whether he should delay them or collect them early.

With $500,000 in an IRA and a pension, you may not need to immediately claim Social Security at age 62. By waiting until full retirement age at 67 or even 70, you can increase your monthly benefit by up to 24%.

However, delaying Social Security means fewer cumulative checks over what could be a decades-long retirement. You’d also need to rely more on drawing down savings and pension income in the interim. Your breakeven age – when delayed Social Security benefits catch up – could be in your early 80s or even later.

Do you need help planning and timing Social Security? Partner with a financial advisor today.

Basics of Social Security Benefits

Social Security benefits are based on a formula that uses your top 35 years of earnings. You can claim reduced benefits starting at age 62 or receive 100% of your earned benefits at your full retirement age, which is 67 for anyone born in 1960 or later.

To decide exactly how much your benefit will be when you claim it, Social Security uses a formula based on the number of months before full retirement age that you start claiming benefits. If you claim at 62 – 60 months before the full retirement age of 67 – the benefit will be reduced by 30%.

But you can also increase your benefit by delaying it beyond full retirement age, but only up to age 70. For every year you delay claiming your benefit between ages 67 and 70, it grows by up to 8%, excluding cost of living adjustments.

Social Security Claiming in Action

A financial advisor goes over Social Security estimates with a pair of clients who are approaching retirement age.

To get an idea of how this works, consider this example. If your full monthly benefit at age 67 is $2,000 and you start taking Social Security at 62, you’ll get 30% less, or $1,400 per month.

Waiting until age 67 to file for Social Security will ensure you receive your full $2,000 monthly benefit. However, doing so means you’ll forgo five years of $1,400 monthly checks – $84,000 in total – that you could have collected. Cost of living adjustments, or COLAs, will increase the total amount you’d pass up by waiting.

Also keep in mind that by waiting until age 70 to claim benefits, you’d receive $2,480 per month. That’s 24% more than you’d get by claiming at 67, and 77% more than if you claimed at 62. Here, you’d be foregoing $148,800 in payments by waiting eight years.

If you need additional help estimating your future benefits and deciding when to claim them, consider speaking with a financial advisor.

Making the Call

So, how can you decide what to do? First of all, consider your life expectancy. Assess this to your best ability and determine whether you can expect to live into your late 70s, 80s or beyond based on your health and family history.

Next, crunch the numbers to find the break-even point at which cumulative lifetime benefits are equal using either strategy. For example, if you will break even in your early 80s, but expect to live to 90, delaying Social Security to age 70 likely makes sense.

Also, closely evaluate your plans for IRA withdrawals and other income sources to cover expenses until age 70. If you can budget for a safe withdrawal rate, delaying may be a better move.

Claiming Complications

A married couple talks about the right time for claiming Social Security.

With timeframes of decades and many factors influencing the outcome, uncertainty is inevitable when making these decisions. Your Social Security claiming age selection carries risks whether you claim now or delay.

One risk is that you may not live long enough to break-even if you do decide to delay benefits. Another potential problem of starting Social Security earlier is that your reduced benefit may not keep up with inflation over decades.

Also, consider whether drawing more retirement income from your IRA in your 60s could require selling investments in a down market. Tax rates present an additional wildcard, since they may increase or decrease in the future, affecting non-Roth IRA withdrawals. Even your pension benefit may not be perfectly level. In turn, you may want to consider talking things over with a financial advisor.

Bottom Line

Choosing when to take Social Security requires careful analysis of your savings, pension, life expectancy and more. Consider running the numbers both ways, comparing taking a reduced benefit at 62 vs. waiting until full retirement age. Also, consider delaying further and waiting until your benefit maxes out at age 70. Much depends on just how long you’ll live and need retirement income. However, a person with $500,000 in an IRA and a pension may want to strongly consider delaying Social Security until age 67 or even 70.

Retirement Planning Tips

Many financial advisors can analyze your full financial picture and build a Social Security plan. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
You can’t make this decision without an estimate of your future Social Security benefit. SmartAsset’s Social Security calculator can help you run the numbers so you can estimate how much your benefit will be at various claiming ages.