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For many retirees, Social Security benefits are seen as hot money on the table, to be devoured as soon as possible. But as with preparing and savoring a fine meal, a careful approach and delayed gratification may yield the highest rewards from the program.

Many financial planners advise that you wait as long as possible before receiving benefits. Despite this, a sizable number of Americans who have reached 62 — 41 percent of men and 46 percent of women — apply for Social Security then, the earliest age at which you can take payments. The way Social Security works, this will lock in the lowest possible payment for life.


The “early” approach works if you need the money immediately. A lot of people, especially the millions who haven’t saved much, do need it. But the decision would penalize you over time. You would be passing up a progressively higher benefit available in each of the next eight years. This period includes when you reach what Social Security calls your “full retirement age” — 66 for those born between 1943 and 1954, as old as 67 for later arrivals — and what might be called a bonus period after that, ending at age 70.

Individual dollar totals over the course of a retirement are never easy to predict, but unless your current health prognosis is gloomy, the longer you expect to live, the more sense it makes to delay benefits.

By receiving Social Security at 62, you take a haircut on potential future payments of 30 percent compared with a 6.7 percent reduction at 67. For those waiting until age 70, Social Security offers an 8 percent yearly rate of increase in payments (not including cost-of-living adjustments) over taking benefits at 62. That easily beats what you would earn in government bonds these days.


The “wait to take” strategy makes even more sense when you consider longer life spans. On average, women reaching age 65 today can expect to live to age 86 and men to 84, according to the Social Security Administration. About a quarter of this group will live past 90. If you’re relatively healthy and there’s longevity in your genome, you’ll probably need the extra money.

Then there is the cost-of-living adjustment, making Social Security one of the few inflation-adjusted retirement benefits around — at least for now. But keep an eye on Washington: Several proposals have been floated to trim the cost-of-living adjustment, though none have made it through Congress and all are likely to be extremely unpopular among current retirees and near retirees.

Professor Richard H. Thaler, the University of Chicago behavioral economist and Sunday New York Times columnist, said that with most people claiming Social Security benefits within a year of eligibility, “they are passing up a chance to increase the most cost-effective way to get more inflation-protected annuity income, which is to delay claiming. For those who are strapped for cash, it may be better to start drawing down their 401(k) assets sooner and keep building up their Social Security credits.”

What if you chose to work past 62 and then collect Social Security at 70? In addition to the boost in Social Security benefits, your 401(k) could grow significantly in those eight years, even with conservative assumptions. Let’s say you had a $250,000 balance in your 401(k) at age 62 and decided to stay in the plan by contributing 10 percent annually with a 50 percent employer match (up to 6 percent). At a modest 5 percent rate of return, based on an $80,000 salary and 3 percent annual raises, you’d have nearly $482,000 at age 70.


But things get more complicated if you have a spouse and you choose to work longer.

There are some tricky rules regarding how spousal and survivor benefits are paid, so it would be worthwhile to talk to a qualified financial adviser or the Social Security Administration to see how to reap the maximum benefit. The simple math here is that higher-earning spouses should wait as long as they can before taking Social Security. The higher his or her preretirement income, the higher the spousal or survivor’s benefit. Conversely, it’s less of an advantage for the lower-earning spouse to delay since benefits are tied to lifetime earnings.

For same-sex couples, the process would work the same, but with one wrinkle: Couples have to be legally married and live in states that recognize the union. All of the other eligibility rules apply.

Another strategy is that the higher-income spouse can file for benefits, then ask the Social Security Administration to suspend payments. Then, the lower-earning spouse files for a “spousal” benefit — half that of the higher earner. This produces some cash flow until the top earner files for the maximum payment at age 70 and the other spouse can file for his or her regular benefit, which would also be a higher payment. It’s an interim strategy that might work for those who want to work longer or semi-retire.


Although Social Security math gets gnarly when two people are involved, there are a number of calculators that can help you decide. The Social Security Administration provides simple tools to help you calculate retirement age, longevity estimates, and benefits. T. Rowe Price has a free tool that can work with Social Security’s numbers.

For a more sophisticated analysis, consider the Maximize My Social Security software, written by Laurence J. Kotlikoff, an economics professor at Boston University. It costs $40 a year.

Keep in mind that Social Security can be a small but integral part of a complex puzzle of pensions, annuities, savings, and other sources of income. A certified financial planner, certified public accountant, or chartered financial analyst can review possibilities that take into account all of your assets and your tax situation.

The best decision allows you to maximize income, build your nest egg, and not worry about running out of money.