The vagaries of deciding when to take Social Security benefits can be daunting. With life expectancies stretching out decades beyond the early retirement age of 62 (or even the normal retirement age of 65-67), the importance of making a good choice is huge. As we often say to clients, financial planning is in reality "contingency planning" with the primary driver being our own longevity: Will we be here "days or decades"?

It is good to understand that Social Security as a whole is operated under the Law of Large Numbers. This basically holds that the larger the sample number, the closer the actual experience will match the probabilities. That is, over time the Social Security Administration has a very clear idea of how many people receiving benefits will survive one more year and how many will not. Our sample, however, is just one (or two if we have a spouse) and our experience may be quite different from the average.

There are plenty of complexities to the Social Security decision but for the main, forgoing benefits until at least normal retirement age can be worth literally hundreds of thousands of dollars.  Taking benefits at age 62 equates into a 30% reduction in monthly benefits. In a financial world where interest rates are very low, the reward for waiting each additional year to receive benefits can be in the 7-8% range. That is a compelling return that may even exceed expected returns from diversified portfolios of financial assets.

In our politically charged economy, it is sometimes difficult to separate our concerns from actual facts. When making decisions regarding Social Security, however, it is important to do just that. None of us know what policies may arise well into the future that could impact benefits. We only know what is there today and we should make choices accordingly.