As a retiree, chances are good that Social Security will be important in your financial plans. These benefits are a crucial income source because of the guarantee of lifetime income they offer, as well as the periodic cost-of-living adjustments that apply to ensure they keep pace with inflation.
Making strategic choices can give you more security in your later years, although you'll also need supplementary income. It's especially important to make the right decision about when to claim benefits, as the time you first file can have a huge impact on the income you receive. The typical retiree may even be able to score around a $900 raise.
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Making this move can substantially increase your Social Security benefits
If you want to supersize your Social Security check, the most reliable way to do that is to wait for it as long as possible -- and ideally not to file for benefits to begin until you've hit your 70th birthday. This may sound like a big sacrifice since benefits become available as early as 62. But the payoff can be huge.
Say you were on track to get a $1,657 Social Security benefit at your full retirement age. That's the average benefit a Social Security recipient receives in 2022. Depending on when you were born, your full retirement age (FRA) is between 66 and 2 months and 67. If your standard benefit based on your work history was scheduled to be around the $1,657 average, you'd have to claim it at FRA to get that exact amount.
But what if you decided to claim benefits at 62 when your FRA was 67? You'd be subject to five years of early filing penalties, which equal 5/9 of 1% for the first 36 months you claim benefits before FRA and 5/12 of 1% for each month you get checks before then. Your $1,657 check would shrink by 30% in total due to these penalties and would come down to about $1,160. That's a $497 difference.
That's a big decline, but you may be wondering where the $900 raise comes in. To boost your benefit that much, you'd have to wait beyond FRA and claim checks for the first time at 70. By doing so, you'd earn the maximum amount of delayed retirement credits, which become available to those who don't get their first Social Security benefit until after FRA.
Delayed retirement credits are worth 2/3 of 1% per month, so earning three years of them by claiming checks at 70 instead of 67 would lead to a 24% increase over the amount you'd have received at FRA. Adding 24% to a standard benefit of $1,657 would bring it up to around $2,055 per month. That's $895 more per month than the payment that would've come if your checks started at 62.
Of course, if your standard benefit is smaller or larger than the $1,657 average, the specific numbers would look different. But the bottom line is, you'd have a lot more monthly money coming from Social Security if you delayed filing for checks until 70 rather than claiming them at 62. This could come in handy later in life if your savings is waning.
Ultimately, you'll have to consider your individual situation -- including your life expectancy -- when deciding on the best age to begin receiving retirement income from Social Security. But when you make your choice, just remember that the decision to wait can make a noticeable impact on the monthly payments you end up with.
