Long Island woman, 62, lives paycheck-to-paycheck on $2,400/month, has no savings and is struggling to survive — but she refuses to collect Social Security until 70. Here’s why

Doing the math

Since Williams is 62, she’s eligible to start taking her Social Security benefits, but her full retirement age — when she can receive 100% of her benefits — is 67. If she claims her benefits at 62, they will be reduced by 30%. For example, if her full benefit at 67 would be $1,000 per month, claiming it at 62 would reduce it to $700 per month.

On the other hand, if she delays taking her benefits after 67, her monthly payments will increase. At 68, she would receive 108% of her full retirement benefit, and by waiting until age 70 — the latest to start benefits — she will receive 124%. So, if her full retirement benefit is $1,000 and she waits until age 70 to start collecting it, she’ll receive $1,240 per month.

Life is unpredictable, and since we don’t know how long we’ll live, we have to make important financial decisions based on estimates. For example, a 62-year-old woman could fairly expect to live another 22 years — until age 84 — according to Social Security’s actuarial life tables. However, women who actually make it to age 70 can expect to live even longer — another 16 years, until age 86.

On a pure cash flow basis — in the absence of any discounting or compounding, and ignoring regular cost-of-living adjustments (COLA) — if Williams is entitled to $1,000 at her full retirement age of 67 and she takes it, then she’ll receive a total of $228,000 by 86. If she starts at 62 and receives $700 per month, she’ll only receive a total of $201,600. At age 70, receiving $1,240 per month, she’ll receive a total of $238,080.

But patience isn’t always the best virtue.

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The waiting is the hardest part

The total benefit you receive over your lifetime isn’t the only factor to consider. For example, if you believe you won’t live to your mid-80s — if, say, you have a terminal illness — then it may be better to start collecting earlier.

Or, if you’re struggling to get by you may not want to wait until 70. It’s a personal decision, but you need to consider if extending your paycheck-to-paycheck lifestyle is worth having extra money later.

If Williams starts collecting early and plans to keep working, she needs to be aware that Social Security will reduce her payments based on her earnings. Every dollar in benefits will be withheld for every $2 in earnings above the annual limit, which is $22,320 in 2024.

The key here is withheld: she’ll get that money back later. When Williams reaches full retirement age, the Social Security Administration will recalculate the benefit amount to give credit for the months they reduced or withheld benefits due to excess earnings.

In the meantime, some extra money now may be just enough to help Williams get the stability she needs as she heads toward full retirement. For example, she may be able to pay down her debt rather than adding to it by putting essential expenses on her credit card.

Of course, Williams will need to determine if she can live on the reduced benefit once she stops working. If she claims it earlier, the payment on which her cost-of-living adjustments are based will be reduced too. While 3% of $1,000 is $30, 3% of $700 is $21. This can make a sizable difference in the total amount you’ll receive over time.

Deciding when to take your Social Security benefits is a complex decision, and it pays to do some research and possibly enlist the help of a professional financial advisor.