The decision of when is the best time to start collecting the pension is one of the debates that faces thousands of retirees both in the United States (USA) and in Spain. According to Social Security data, starting in 2027 the retirement age in our country is 67 years unless contributions have been made for 38 years and 6 months. Delaying access until age 70 allows increasing the benefit, in the case of American Social Security, between 24% and 30%, although it is not always worth it.
This is the case of a retiree who told the specialized magazine MarketWatch that he was about to make “a big mistake” when he assumed that he would have to wait until he reached the maximum age to retire. Thus, he opted for the early retirement at 64 years old. “For years I took it for granted that I was going to delay my pension to be able to collect the maximum,” he said. But something happened that made him change his mind.
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Social Security penalizes the pension of those who decide to retire early, but this cut will not affect their spouse’s future widow’s pension.
His daughter, who was a teenager, received financial aid from the State for five years. And this benefit added up to two thirds of his pension. This completely changed their plans. “Before including the age linked to my daughter, the threshold was above 80 years old and then it became close to 86.” So, “it made up for me to have waited to receive more money on the payroll.”
The retiree had estimated a probable life expectancy of between 84 to 86 years. So “starting to collect the pension at 70 didn’t make any sense.”
The pension was 20% of his income
The retiree points out that he and his wife, who is 10 years younger, have “significant investments and assets” in addition to good savings. For this reason, the Social Security pension “was going to represent around 20% of future income.”
To reach this conclusion, he carried out a study in which he projected his finances until he was 90 years old and his wife’s 100 years old. “I knew then that money had more value in the present than in the future.” “When you have sufficient assets and the pension is not the main support, collecting earlier may make sense.”
In the United States, the ordinary retirement age is 67 years, although it is possible to advance the collection of the pension with penalties or delay it in exchange for supplements.
More than 280,000 euros for his daughter’s university
The benefit associated with his daughter was a tool to ‘pull’ to move the family economy forward. The retiree explained that “we used that money for day-to-day expenses, and most of it was for a 529 university plan, which is a fairly well-known investment instrument in the United States.”
Her daughter’s first year in Minnesota, at a cost of 52,000 euros a year, meant a significant cut in her savings. But not worrying “there are about 291,000 euros left in the fund, which is enough to finance the rest of his studies and even a postgraduate degree.”
I would reserve at least 32,500 euros for my daughter to have in Roth IRA which is a savings product with tax benefits, similar to a pension plan. “I had to give up many of my hobbies to be able to prioritize our family savings.”
“Social Security should never be an investment”
The pensioner’s letter has been answered by Quentin Fottrell, who is a well-known economics columnist who has pointed out that there is no universal answer on when to collect the public pension. “Social Security is not an investment, it is insurance against the risk of living longer.”
“Many people are reaching retirement without having made minimum calculations about longevity, assets, and future needs,” said the expert.