apply for social security

Should You Apply for Social Security Benefits Now or Later?

Q: Hi Lynnette, I am 65, still gainfully employed; in great health but, heavily in debt with student loan debt and installment loans.

I plan on working another three years. Would it make sense to apply for Social Security benefits now, to pay down on my debts or, still wait another 10 months, when I am 66, and eligible for full benefits?

 A: Given your debt situation, and the fact that you plan to still work another 3 years, I would definitely say wait to claim your Social Security benefits.

Generally speaking, for every year that you delay taking Social Security, you will increase your Social Security benefits by about 8%. In your case, since you’ll be 66 in 10 months, you’ll be effectively adding roughly $2,000 a year to your annual Social Security benefits.

$2,000 is a nice chunk of extra money to get at any point. But over time, the financial advantage of just waiting becomes more magnified. By age 76, you’ll reap an additional $20,000 (not adjusted for inflation or any increases in Social Security), just by delaying taking receipt of your Social Security benefits.

The trade off, of course, if how much money you’ll be paying in credit card interest over time. That depends on how much debt you have and the interest rate on that debt. You didn’t indicate those factors, so it’s hard for me to make a financial comparison there.

Regardless, I wouldn’t want to see you simply use your Social Security benefits just to pay off educational loans and installment debt. A better strategy is to use the earned income you’ll generate over the next year — and if necessary, over the next three years that you plan to start working. Tweak your budget if necessary to free up cash flow and start making extra payments on that college debt and those installment loans too.

But overall, I’d say wait to claim your Social Security benefits. That will provide a much bigger payoff in the long run.

Oh, and there’s one other big benefit to waiting. You didn’t say if you are married. But if you are married, then delaying your receipt of Social Security benefits has one other huge upside: Not only does it maximize your Social Security payout over your lifetime, it also greatly increases the survivor benefit that your spouse (if any) would receive when you pass away.

I hope this information helps. Good luck to you.

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