Why Delaying Social Security Isn’t Always Your Best Bet

Many seniors inevitably wind up relying on Social Security pretty heavily during retirement. That's because plans to build up a large nest egg can often go awry.

Just think about the way inflation wreaked havoc on consumers in 2022. Many workers no doubt cut back on IRA or 401(k) plan contributions this year due to inflation. But the reality is that in any given year — or series of years — you might run into a situation where you're unable to fund your nest egg. And that's why you may end up more dependent on Social Security than expected.

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In fact, you may be inclined to do whatever you can to squeeze more money out of Social Security. And that could involve delaying your filing.

Doing so could result in a higher monthly benefit. But that doesn't automatically make a delayed filing your best bet.

Holding out doesn't always work out

You're entitled to your full monthly Social Security benefit based on your income history at full retirement age (FRA). And that age varies based on your year of birth.

Anyone born in 1960 or later is looking at an FRA of 67. If that's your FRA, delaying Social Security until age 70 means snagging a 24% boost in benefits — not too shabby. (To be clear, age 70 is the latest age you can accrue credits for a delayed filing. If you sign up for Social Security at 71, you'll get the same benefit you would have gotten at age 70.)

At first, a delayed might seem like an excellent idea. But you shouldn't automatically assume that delaying your filing is your most financially rewarding bet. The reason? You don't know how long you'll live.

For a delayed filing to make financial sense, you need to calculate your break-even point. With an FRA of 67, age 82 1/2 is your break-even age in the context of a delayed filing at age 70. That means that if you don't live until age 82 1/2, you lose out financially by virtue of filing for Social Security at 70.

Of course, a delayed filing doesn't have to be mean waiting until age 70 to sign up for Social Security. You can delay your filing a year and boost your monthly benefit by 8%, which changes your break-even age.

But either way, don't let your desire to get more from Social Security drive you to delay your filing without crunching the numbers first. You may like the idea of a higher monthly benefit for life. But in pursuit of that, you could end up shorting yourself on your total lifetime Social Security payout.

Stay focused on savings

If you're worried you'll need a lot of Social Security income to compensate for a smaller nest egg, you may want to look at changing your approach to retirement savings. That could mean altering your spending to free up more money for your IRA or 401(k), or it could mean investing your nest egg differently to boost your returns. Remember, not every year will be as bad as 2022 with regard to inflation, so don't assume you won't have opportunities to ramp up your savings rate.

It's certainly not a bad idea to think through different filing strategies before claiming Social Security. But don't assume a delayed filing is automatically the ideal way to go.

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