Putting off a claim for Social Security benefits is often advisable because waiting to get your first check can increase your monthly payment substantially. In fact, you can earn hundreds of dollars more per month if you delay long enough.
But while it may make sense for some people to wait, it's not the right choice for every senior. Putting off a benefits claim obviously means foregoing the chance to get checks for months or even years. You'll want to make sure you break even for this missed money in order for late filing to make sense.
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The average retiree takes years to make up for missed Social Security payments
You become eligible for Social Security benefits as early as age 62, but retirees are often encouraged to wait to claim benefits because early filing reduces monthly income.
Every retiree is entitled to a standard benefit based on their work history, but they get this amount only if they start payments at their designated full retirement age. A claim before that will lead to smaller monthly payments but more checks over time. A claim after it will result in the reverse, with retirees getting fewer payments, but larger ones, over time.
If you're going to delay a benefits claim, you'll be trading money you could get now in exchange for higher payments years into the future. That's why it is so important to do the math and figure out how many of those higher payments must come your way to make up for income missed. In many cases, you'll find it takes a surprisingly long time for big future checks to make up for all the income you passed up.
In 2022, for example, the average Social Security benefit is $1,661. If your full retirement age (FRA) is 67, which is the case for anyone born in 1960 or later, you will shrink your check by 30% if you claim it at 62 instead of at FRA. As a result, an average benefit of $1,661 would fall to around $1,163 per month if you claimed at 62 instead of 67. By contrast, the $1,661 average benefit would increase to around $2,060 monthly if claimed at age 70 instead of 67.
Obviously, payments of $2,060 per month sound more attractive. But, there's a big caveat. You will have missed out on eight years of monthly payments. Passing up 96 $1,163 checks means giving up $111,648. Since you do eventually get $897 more per month starting at age 70, you would need around 124.5 monthly Social Security payments in order for the $897 extra each month to make up for the missed $111,648.
That means if you were on track for around the average benefit and you claimed payments at 70 instead of 62, you wouldn't break even until you'd received payments for around 10.4 years. You'd have to live until at least 81.
Does it make sense for you to wait to claim your benefits?
If you think you will outlive the point where you get enough extra money to cover all the income you gave up with a delayed Social Security claim, then it makes sense for you to wait to start Social Security as long as possible. But if you have doubts about your health holding up, a delayed claim could leave you with less lifetime income and you'd be better off starting checks earlier even if it means you get less money each month.
A lot depends on your projections for your future. But it is important to note just how long the typical retiree could take to break even as you'll likely be well into your 80s before ending up better off for having made a delayed Social Security claim.
