For prospective and current retirees who are concerned that “unexpected” or extreme longevity may lead them to run out of money, there are few strategies more effective than the decision to delay Social Security benefits. The tradeoff – where payments are not received now, in exchange for higher payments in the future – is similar to buying an income annuity, or investing in a bond ladder that will begin liquidating in the future… except that the implicit “pricing” of the decision to delay Social Security is far better than any commercial annuity or bond yields available today.
The caveat to the approach, however, is that Social Security dependent benefits may also be available for those in their 60s who still have young children in the home – an increasingly common situation, between couples who start a family later and the rising divorce rate that has also led to a greater frequency of second marriages with young children. And the availability of dependent’s benefits can significant diminish the benefit of delaying Social Security; while delaying does increase the individual’s own benefits in the future, along with potential survivor benefits, waiting may also permanently forfeit children’s benefits that won’t be available down the road (as the children may be too old by the time the retiree reaches age 70).
In light of this situation, planning for Social Security benefits with “young” children in the home (those under age 18) needs to be done more carefully. In some situations, the children may be so close to 18 that it’s still worthwhile to delay. In other scenarios, the opportunity to file-and-suspend at age 66 – starting both spousal benefits and activating dependent benefits as well – may be the best way to go. But in many situations, the potential dependent and spouse’s benefits are so large – even with the “maximum family benefit” limitations – that the best strategy, even in the long run, is to start benefits as early as possible (especially if the Earnings Test will not apply!).