Seniors have the option to get their first Social Security check when they’re as young as 62. But, many people wait much longer — sometimes until age 70 for their first payment.
Why would you put off getting money from the Social Security Administration if you’re eligible for it? The simple reason is that the longer you wait to claim monthly payments, the higher each one will be.
That’s because every retiree has a full retirement age when they must file to get their standard benefit. Claiming before this FRA will shrink your monthly payment while waiting until after it will increase it. Full retirement age is between 66 and 67 depending on when you were born. Starting checks before this age could reduce payments as much as 30% due to early filing penalties, while waiting raises the amount of your monthly check by 8% for each year of delay.
It can be tough to decide if getting more checks, but in smaller amounts, is the best choice or if you should opt to delay in order to increase monthly income even if it means you get fewer payments in the end. But if any of the following four situations sound like the circumstances you’ve found yourself in, putting off beginning benefits as long as possible could be the best move you’ll make.
1. If you’re in great health
Based on Social Security’s design, it theoretically shouldn’t matter how old a retiree is when they receive their first payment. They should end up with around the same lifetime benefits as peers who claimed sooner or later.
The reason that’s the case is because of the early filing penalties and delayed retirement credits mentioned above. Seniors who claim early get more years of checks, but each individual payment is smaller. By contrast, delayed retirement credits increase the amount of monthly income delayed filers receive. This extra money each month should eventually equal the amount forgone by waiting beyond age 62 to begin benefits.
The big question is, will you live long enough that your higher payments not only make up for missed monthly checks, but leave you better off in the end. This can happen if you end up outliving your life expectancy.
Say, for example, you’d have received a monthly benefit of $1,500 at a full retirement age of 67.
- If you begin benefits at 62, you’d have instead gotten a monthly payment of $1,050 since early filing penalties would reduce your standard payment by 30%. Between age 62 and 70, you’d receive at least $100,800 in benefits.
- If you waited until 70, your monthly payment would be $1,860 instead — $810 per month more. After 120 more months of receiving an extra $810, you’d have made up for the $100,800.
Once you live past 80.37 years old, every extra monthly payment increases the lifetime Social Security benefits you end up with. So if you suspect you’re healthy enough to live that long, a delayed benefits claim would pay off for you.
2. If you want to maximize survivor benefits
The loss of a spouse can have a huge, and devastating, financial impact. If you don’t want to make your widow’s situation worse, you need to consider how an early or late Social Security claim could affect the amount of money they end up with. That’s because if you claim Social Security benefits early, this could shrink the survivor benefits your widow is eligible for after you pass on.
Say, for example, you’re receiving a monthly benefit of $2,000 and your partner is getting just $1,000, leaving you with $3,000 total as a couple. If you pass away, your checks stop — but your partner gets to keep the benefit you were receiving. It simply comes in the form of survivor benefits. Their own $1,000 benefit would end and their household income would fall to $2,000. But if you’d reduced your benefit to $1,520 by claiming it early, their household income would fall much further — it would be cut nearly in half.
Coordinating with your partner is crucial when deciding on a Social Security claiming strategy, but in many cases it’s a good idea for the lower earner to claim their own benefits ASAP to provide income to the household while the higher earner waits as long as possible to maximize the bigger monthly benefit.
3. If your work history spans less than 35 years
The amount of your Social Security benefit is based on average wages. Your average wage is calculated using a very specific formula that takes into account your earnings over the 35 years when income was highest after wages are adjusted for inflation.
Retirees who have put in less than 35 years on-the-job will still have their benefits calculated using the same formula. The issue is, without a long enough earnings record, the calculation will factor in some years of $0 wages. And the shorter your work history, the more years of $0 wages will be included and the lower your average wage — and benefit — will be.
If you haven’t worked for a full 35 years, you’ll want to seriously consider delaying Social Security until you do. And if your earnings have gone up over time, think about delaying until you have an even longer work history. Each extra year when you earn a high salary allows one lower-earning year to be removed from your benefits calculation, thus raising your average wage and benefits.
4. If you’re worried about running out of money later in life
Many people have concerns about their savings lasting. If you’re one of them, you’ll want to focus on maximizing Social Security because these benefits are likely the only guaranteed source of lifetime income you have that’s protected against inflation.
With benefits designed to replace only around 40% of pre-retirement earnings, living on Social Security alone is very difficult. But if you find yourself forced to depend on benefits to cover a big portion of your monthly bills, you’ll be very glad you waited to claim and increased the income these benefits bring in.
By considering all of these issues, you can make the best choice about whether delaying Social Security makes sense. For many retirees, putting off a claim for benefits as long as possible until 70 pays off. But since this isn’t the right choice for everyone, you should give careful consideration to your work history; health status; and spouse’s needs when deciding what filing strategy is the right one for you.
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