Social Security was originally designed to replace 40% of an average worker's pre-retirement income, but with an increasing number of beneficiaries and rapidly depleting trust funds, its buying power isn't what it used to be. That makes getting the most out of the program more important than ever, especially if you don't have a lot of personal retirement savings.
Delaying benefits for a few years is one of the best ways to do that if you believe you'll make it to your 80s or beyond. But if you can't afford that, that doesn't mean this advice is useless. Even delaying Social Security for one month can give your checks a permanent bump.
How delaying Social Security by one month can net you $600
Every month you delay benefits past your 62nd birthday increases your benefits slightly. For those with a full retirement age (FRA) of 67 -- most of today's workers -- your benefits grow by 5/12 of 1% per month from 62 to 64, then by 5/9 of 1% per month from 64 to 67, and finally by 2/3 of 1% per month from 67 to 70, when you qualify for your maximum benefit.
If you're eligible for a $1,200 benefit at 62 and you decide to delay benefits one month, you'd get $1,205 per month at 62 and one month. Over the course of 30 years, that extra $5 per month would add up to $1,800. Take away the month of $1,200 benefits you gave up, and you'll end up with an extra $600 in benefits. It's possible you could get even more if you delay Social Security for longer or qualify for a larger benefit.
When delaying benefits makes sense
Delaying Social Security benefits makes sense if you don't need your benefits to cover your living expenses and you believe you will live long enough to make it worthwhile. In order to figure that out, you have to estimate your life expectancy and figure out where the breakeven points are for various starting ages.
For example, if you qualify for the average $1,551 Social Security benefit at your FRA of 67, you'd have to live to at least 78 to start outearning someone who qualified for the same benefit but signed up at 62. And if you lived until 82 or beyond, you'd get the most money overall by waiting until 70 to sign up.
But if you don't think you'll live that long or you need your benefits right away because you were forced into an unexpected early retirement, signing up soon may be wiser than waiting years. You could still delay a couple of months, though, assuming you can afford to, and you'll enjoy slightly larger checks as a result.
Choosing your Social Security starting age
When you sign up for Social Security is a personal decision, and it depends on several factors, as discussed above. But if you want to go for your largest benefit, you should follow the steps below.
- Create a my Social Security account. This will show you how much you'll get from Social Security at different starting ages based on your work history.
- Estimate how long you think you're going to live.
- Multiply your average monthly benefits at the various starting ages you're considering by 12 to get your average annual benefits.
- Multiply your average annual benefits at your chosen starting ages by the number of years you expect to claim benefits to see which will give you the most money overall.
So for example, if you're deciding between a $1,200 benefit at 62 or a $1,285 benefit at 63 and you believe you'll live to 85, you would multiply each of these estimated benefit amounts by 12 to get your annual estimated benefits. That would be $14,400 if you began at 62 or $15,420 if you began at 63.
Then, you would multiply each of these figures by the number of years you expect to claim benefits -- 23 years if you sign up at 62 or 22 years if you sign up at 63. You'd get a total lifetime benefit of $331,200 if you began at 62, but you'd get $339,420 if you waited until 63, so that's the better choice in this scenario.
It's good to have a plan for when you're going to sign up for Social Security, even if you're decades away from being eligible. But you should remain flexible. Your plans could change between now and retirement. If you decide to sign up earlier or later than you originally planned, you may have to adjust how much you're saving on your own to ensure you have enough in retirement.