Conventional wisdom suggests that postponing Social Security benefits until age 70 maximizes monthly payouts. While it’s true that delaying claims can increase monthly benefits, this approach isn’t universally advantageous.
Several factors, including life expectancy, retirement savings, and household income dynamics, play crucial roles in determining the optimal age to claim benefits.
Understanding Social Security Claiming Ages
The age at which an individual decides to claim Social Security significantly impacts the benefit amount. Here’s a breakdown based on a Full Retirement Age (FRA) of 67:
| Age at Claiming | Percentage of PIA Received | Example Monthly Benefit |
|---|---|---|
| 62 | 70% | $1,400 |
| 67 (FRA) | 100% | $2,000 |
| 70 | 124% | $2,480 |
Factors to Consider Before Delaying Claims
Life Expectancy
- Health Status: Individuals with chronic health conditions or a family history of shorter lifespans might not benefit from delaying benefits, as they may not live long enough to offset the years without payments.
- Average Life Expectancy: While delaying increases monthly benefits, the breakeven point—where total benefits received equalize between early and delayed claims—often occurs in one’s late 70s or early 80s. Those uncertain about reaching this age might consider claiming earlier.
Retirement Savings and Income Needs
- Portfolio Drawdown: Delaying Social Security means relying more heavily on personal savings in the interim. This can deplete retirement accounts faster, especially if market returns are unfavorable in the early retirement years.
- Sequence of Returns Risk: Withdrawing from investments during market downturns can significantly reduce the longevity of a portfolio. Without Social Security income to buffer withdrawals, retirees might face increased financial vulnerability.
Household Dynamics
- Spousal Benefits: A lower-earning spouse is entitled to up to 50% of the higher earner’s FRA benefit. However, they can only claim this if the higher earner has filed for their benefits. Delaying claims might postpone the spousal benefit, potentially reducing the household’s immediate income.
- Survivor Benefits: Delaying benefits can result in a higher survivor benefit for a spouse. If the primary earner delays claiming until 70, the surviving spouse could receive a larger monthly amount upon the earner’s passing.
Potential Drawbacks of Delaying Until 70
- Delayed Access to Funds: Waiting until 70 means forgoing benefits during the early years of retirement, which could be used for travel, hobbies, or other activities best enjoyed while one’s health permits.
- Uncertainty of Future Benefits: While Social Security is a longstanding program, future policy changes could impact benefit amounts or eligibility. Relying solely on delayed benefits assumes the program will remain unchanged.
- Impact on Medicare Premiums: Higher income in later years, due to larger Social Security benefits combined with other income sources, could increase Medicare Part B and D premiums, reducing the net benefit of delaying claims.
Making an Informed Decision
Deciding when to claim Social Security benefits is a personal choice that should consider individual health, financial circumstances, and family dynamics.
Consulting with a financial advisor can provide personalized insights, helping to balance the potential for higher future benefits against current financial needs and risks.
FAQs
Is it always better to wait until 70 to claim Social Security benefits?
Not necessarily. While delaying increases monthly benefits, factors like health, financial needs, and life expectancy can make earlier claiming more advantageous for some individuals.
How does claiming Social Security early affect my benefits?
Claiming before your Full Retirement Age results in a permanent reduction in monthly benefits. For example, claiming at 62 reduces benefits to 70% of the Primary Insurance Amount.
What is the Full Retirement Age (FRA)?
The FRA varies based on birth year. For those born in 1960 or later, it’s 67. Claiming at FRA entitles you to 100% of your Primary Insurance Amount.
