Many financial experts advise waiting until the age of 70 to start your Social Security retirement checks — even though they first become available when you’re 62.
There’s a simple reason delay is often the best solution: Putting off the start of your benefits can significantly increase the monthly income they provide, giving you a larger source of guaranteed lifetime income that’s protected against inflation. For most people, waiting also results in more lifetime income as well.
But although future retirees may plan to start their checks at 70 to reap these benefits, doing so may not always pay off. Here are two big reasons why.
1. Circumstances may force you to claim sooner
If you’re anticipating waiting until 70 to start your benefits checks, the reality is that this plan may not come to fruition. Many people want to work late in life, but often circumstances outside their control make that impossible.
If you develop health issues that stop you from continuing your job or you must become a caregiver for a family member with medical problems, working until 70 may not be in the cards. The loss of a job later in life could also make it difficult for you to stay in the working world if there aren’t many opportunities available for people your age.
If you’re forced out of the workforce early, chances are good you’ll end up having to claim Social Security benefits, since you otherwise may not have enough income to live on. This can be a huge problem if you’ve planned to claim Social Security at 70 and were anticipating a bigger benefit that doesn’t end up coming.
To make sure your desire to claim Social Security at 70 doesn’t backfire, set retirement savings goals by operating under the assumption you’ll need to start your checks at 62. If you assume smaller monthly Social Security payments when calculating how much supplementary income your savings needs to produce, you can ensure you don’t end up with a shortfall if claiming at 70 doesn’t work out.
2. You may not live long enough to break even for the delay
Once you’ve made it to 70 without claiming your Social Security benefits, you may assume you’re among the retirees who will end up financially better off due to waiting to start your checks.
Sadly, that’s not necessarily the case. You’ll have missed out on eight years of checks that were available but you chose not to claim. In order to end up with more lifetime Social Security income, the extra money in the checks you start getting at 70 has to make up for all the money you missed in the intervening years. And then you’ll have to continue receiving higher monthly checks for at least some time, even after breaking even.
Say, for example, your standard benefit at a full retirement age of 67 would have been $1,500. Here are two different scenarios:
If you claimed it at 62, you’d have been hit with a 30% benefits reduction due to early filing penalties. You’d get just $1,050 in monthly income per month.
If you waited until 70, you’d have earned a 24% benefits increase to your standard benefit due to delayed retirement credits, so you’d get $1,860 per month.
Your $1,860 benefit is $810 more per month than the $1,050 benefit you’d have received starting at 62. You’d have missed out on $100,800 in Social Security income between the ages of 62 and 70, though.
To break even for that, you’d need to get the extra $810 in monthly benefits for 124.4 months or 10.37 years. So you’d have to live until at least 80.37 in order to break even — and longer to benefit.
Consider these two serious potential issues when deciding whether planning to claim Social Security at 70 is likely to pay off for you. If you don’t prepare for smaller benefits in setting savings goals or you expect you may not live until well into your 80s, anticipating a delayed claim may leave you worse off in the end.
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