In many cases, it’s financially advantageous to wait until 70 to start collecting Social Security benefits. Postponing your first check can lead to delayed retirement credits if you wait until after your full retirement age (FRA), not to mention avoiding any early filing penalties that come up if you claim prior to reaching FRA.
But there’s no one-size-fits-all approach when it comes to Social Security. And in some circumstances, you may actually be in better off if you claim benefits as early as possible. In fact, there’s one particular situation when waiting to file for benefits wouldn’t ever make sense and would always leave you in a worse financial position.
You’ll regret delaying your Social Security claim in this situation
The one situation where you absolutely need to claim Social Security before age 70 is when not doing so will force you to rely excessively on your retirement nest egg.
Say, for example, that you can’t continue working for various reasons, such as the need to take care of a family member, a health problem of your own, or difficulty finding a job late in life. If you no longer collect a regular paycheck, you’ll still have to pay for key expenses such as food, housing, transportation, and healthcare.
If you’re eligible for Social Security but decide not to take it in this situation because you’re hoping to maximize your monthly benefits, you’ll have to rely on other sources of income. And if you don’t have a pension, rental income, or other funds, you’ll need to draw from your savings.
While taking money out of your savings is expected after you leave the workforce, the key is maintaining a safe withdrawal rate, and that means you can’t take too much money out at one time. By doing so, you reduce your invested balance and reduce potential future returns. If you withdraw more than you should and your balance falls too quickly, there’s a great risk of running out of money late in life.
For most people, withdrawing 4% of their account balance each year (or less) is the best approach to ensuring your savings don’t run dry, but a problem arises when that’s not enough to cover your expenses.
The reality is, in this situation, you’re far better off claiming Social Security as early as possible (assuming you can’t find any another option to generate the extra income you need). If you don’t take that step and rely on outsized withdrawals from your savings, your nest egg is more likely to run out down the road, leaving you to rely only on Social Security benefits when that happens. And since these benefits typically replace just 40% of pre-retirement income, that would be a huge problem for most retirees.
You aren’t going to be able to easily rebuild your savings once you’ve depleted them, and you’re far better off giving up the extra Social Security benefits that come with a delayed claim than putting yourself in a situation where you’re completely reliant on those benefit checks later in life.
So if you’re in danger of making outsized withdrawals from your savings, then don’t hesitate to claim Social Security as soon as possible to avoid future problems, even if that means starting your benefits well before you’ve hit your 70th birthday.
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