One of the trickiest decisions you might have to make in the course of gearing up for retirement is deciding when to claim Social Security. You can file for benefits as early as age 62. But you're not entitled to your full monthly benefit based on your personal earnings history until your full retirement age (FRA) arrives. And that age is 66, 67, or somewhere in the middle, depending on the year you were born.
But you don't have to sign up for benefits once you reach FRA. Instead, you can hold off on filing and rack up delayed retirement credits that boost your benefits by 8% a year.
Once you turn 70, those credits won't continue to accumulate, so 70 is generally considered the latest age to file for Social Security. And if you do hold out until age 70, you might grow your benefits in a very meaningful and helpful way.
But despite the upside of claiming Social Security at age 70, you may want to file for benefits a lot sooner than that. Doing so might result in less money on a monthly basis -- but not necessarily on a lifetime basis.
A risk you may not want to take
Delaying Social Security until age 70 generally pays off financially when you expect to live a long life. But if you don't, then claiming benefits sooner generally makes more financial sense.
Remember, filing early might mean getting less money from Social Security every month. But it could also mean getting more out of Social Security in your lifetime.
Say you're looking at a monthly benefit of $1,700 at an FRA of 67. If you file for Social Security at age 62, you'll shrink that benefit to $1,190, whereas if you hold off until age 70, you'll increase it to $2,108.
If you end up living a long life, you'll get more out of Social Security in total by delaying your filing until age 70. But what if that doesn't happen? What if you end up passing away at age 75? In that case, here's the total lifetime benefit you're looking at based on your filing age:
- Age 62 -- $185,640
- Age 67 -- $163,200
- Age 70 -- $126,480
And that's exactly why it could pay to claim Social Security well before age 70. While you may end up shorting yourself on benefits in the event of living a longer life, you can't say with certainty that will happen. So filing early might actually end up giving you peace of mind.
Of course, all of this assumes that you're single and only have your own needs to account for when deciding when to claim Social Security. If you're married, it's easy to make a case for delaying your filing to leave your spouse with a larger survivor's benefit if they outlive you by many years.
But otherwise, don't just fixate on the amount of monthly income you're looking at when landing on a Social Security filing age. Instead, take lifetime income into account. When you do, you might realize that filing well before age 70 is really your smartest and safest bet.