Millions of aging baby boomers are wrestling to decide when to begin receiving Social Security and if you're among them, you're likely debating between taking Social Security early and potentially leaving tens of thousands of dollars tied to delayed retirement credits on the table, or taking it later, and risking falling ill and being unable to enjoy bigger monthly Social Security payments.
Although deciding when to take Social Security is a personal decision that depends a lot on your individual situation, here's an example of when opting into Social Security early could end up being a mistake.
Healthiest of the healthy
Is your gene pool the envy of everyone? Do your doctor visits end with a clean bill of health? If so, then you might be one of the lucky ones who will live longer than number crunchers estimate.
Currently, the Social Security Administration forecasts that a man born in 1960 will live to about 83 years old and that a women born the same year will live to about 86 years old. According to Vanguard, the average man and women currently age 65 has a 41% and 53% chance of reaching age 85, respectively.
Therefore, if your rock-solid health positions you to live to those ages and beyond, then it could be a mistake to forego the benefit of delayed retirement credits that are offered by Social Security.
As a refresher, retired workers can opt into Social Security at any point between age 62 and age 70, but they'll only receive 100% of their benefit if they begin taking Social Security at their full retirement age. That full retirement age varies between 66 and 67, depending on the year in which you're born.
If you opt into Social Security before your full retirement age, you'll receive a smaller payment than you would otherwise. If you delay enrolling in Social Security, your payment will be bigger than it would be at full retirement age.
For example, a person born in 1960 that claims Social Security at age 62 would receive a monthly Social Security check that's 30% smaller than if they waited until their full retirement age of 67. If that same individual waits until age 70 to begin receiving Social Security, then they'll receive a check that's equal to 124% of their full retirement benefit.
Because delaying until 70 can increase your payments significantly, payments over a long life can more than offset the amount of money that could be accumulated if payments began at age 62.
For example, assuming a person born in 1960 has a $1,000 monthly benefit at 67, they could receive $700 per month at age 62 or $1,240 per month at age 70. If they take that $700 per month at age 62 and live until 90 years old, then they'd receive $235,200 in Social Security checks over 28 years, excluding the impact of potential annual cost of living increases. If they waited until age 70, then they'd receive $297,600 in Social Security income over their lifetime, or $62,400 more than they would have if they had taken Social Security early.
A long-living spouse
Even if your gene pool isn't the best, taking Social Security earlier than full retirement age may not be the best idea if your spouse is as healthy as an ox.
That's because the maximum your spouse can receive in Social Security survival benefits is whatever you would be receiving if you were alive. Since their monthly checks are capped at your level, if they were to live to 90 years old, then the math outlined above would hold true for them too.
Additionally, if a younger spouse relies on your Social Security income and that spouse has yet to reach full retirement age, then the amount that they may receive after you pass away could be affected significantly as well. For instance, a spouse that needs to claim Social Security survivor's benefits at age 60 on your record would receive just 71.5% of whatever your Social Security monthly benefit was at the time of your death.
Tying it together
Deciding when to start receiving Social Security checks is one of the toughest financial decisions retirees face and life expectancy is only one thing that individuals need to consider. For example, if there are other sources of retirement income, such as a pension, taking Social Security early and investing that money could make more sense over time. Nevertheless, if you and your spouse will rely on Social Security income to pay your monthly expenses and health isn't a concern for at least one of you, then claiming Social Security later may make more sense than taking it at age 62.