You’ll often hear that delaying your Social Security filing as long as possible is a smart move. You can first sign up for benefits at the age of 62, but doing so will give you a lower monthly paycheck for life.
If you wait until full retirement age, or FRA, to claim Social Security, you’ll get the exact monthly payout your earnings history entitles you to. And if you delay your filing beyond FRA, you’ll boost your benefits by 8% a year, up until the age of 70, which is when that incentive runs out.
Clearly, delaying your benefits could work to your financial advantage. If your FRA is 67 and you hold off on filing until 70, you’ll snag a 24% boost that will remain in effect for the rest of your life. But before you assume that delaying your benefits is the right call, ask yourself these questions.
1. How much have I saved for retirement?
If you’re coming into retirement with a minimal amount of savings, then you may end up relying quite heavily on Social Security — in which case, holding off on benefits indeed makes sense. But what if you’ve saved several million dollars or enough money to not only cover your living costs, but ensure that there’s extra left over for travel and leisure? At that point, is delaying benefits really necessary? It may not be.
If you don’t think you’ll end up reliant on Social Security, it may not matter when you file. And if that’s the case, you may opt to claim your benefits sooner and use them earlier in life, when you may be in better physical shape to enjoy them.
2. What do my expenses look like?
The amount of money you’ll need to live on in retirement will depend on what your specific bills look like. And if you intend to live modestly, then you may not need boosted Social Security. Rather, you may do just fine with a lower benefit — and you may, in that case, opt to file earlier to buy yourself more options.
3. How long do I expect to live?
If you expect to live a long life, then delaying your filing could help you walk away with the highest lifetime payout from Social Security. But if you expect to pass away at a younger age than the average retiree, then claiming benefits early actually makes sense. In doing so, you’re likely to end up with a higher lifetime total despite collecting a lower monthly benefit.
Here’s how that might play out. Say you’re entitled to $1,500 a month at an FRA of 67. If you delay your filing until age 70 and boost your monthly benefit by $360 in the process for a total of $1,860, you’ll end up with a lifetime total of $111,600 if you live until age 75. But if you stick with filing at FRA, you’ll end up with $144,000. And if you file at 62, despite shrinking your monthly benefit to $1,050, you’ll walk away with a total of $163,800 in your lifetime.
While delaying Social Security is a smart move for some people, it’s not the right decision for everyone. Before you make that call, think about your personal circumstances and goals. You may decide that filing for benefits at a different age will better serve you, both in the near term, as well as throughout your retirement.
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