Social Security gives retirees a deceptively simple choice: take smaller monthly benefits earlier in your retirement or wait longer to get larger monthly checks. Most people start collecting Social Security at or before they reach full retirement age, and the most popular age to take Social Security is the earliest possible age of 62. Yet there are reasons why waiting as late as age 70 can be the smartest move for your Social Security benefits. Below, we'll take a look at three of them.
Reason 1: Waiting gives you the biggest possible monthly Social Security retirement check.
When you claim Social Security makes a huge difference to how much you'll get. Someone who is entitled to receive $1,000 a month from Social Security if they claim at age 62 would get payments of $1,760 per month if they waited until age 70.
Of course, that extra money makes up for the fact that you missed out on as much as eight years of payments during your 60s. Using simple breakeven analysis, the larger payments will take more than 10 years to catch up to those who got more of the smaller payments from taking benefits early. Nevertheless, the typical American who reaches age 62 has a life expectancy that extends into their mid-80s. That means that on average, those who wait until 70 do make up the difference and end up better off than those who claim early.
Reason 2: Waiting can give your survivors bigger Social Security checks.
Many people only think about their own retirement benefits when making Social Security decisions. However, when you claim Social Security for yourself can also have an impact on what your spouse and eligible children might receive after your death.
The most common example involves surviving spouses, whose survivor benefits are based on the deceased worker's benefit. If the deceased worker claimed early, then survivor benefits will receive the same haircut, and that can make them less valuable to the surviving spouse. By waiting longer, however, the survivor benefits that the surviving spouse receives will be that much higher. Often, even if your own individual health record would suggest taking benefits earlier rather than later, taking a spouse into account can turn the balance back toward waiting longer. The reason is that for married couples, Social Security essentially turns into an arrangement similar to a joint-and-survivor annuity. Evaluating it as a couple becomes appropriate in that circumstance.
Reason 3: An outside pension could wipe out your Social Security payments if you took them earlier.
Special Social Security rules can take away payments because of having other sources of retirement income. Specifically, the Windfall Elimination Provision affects those who have government pensions from public sector work as well as Social Security from private-sector employment, and the net impact can be to reduce your Social Security check by up to $428 per month in 2016. The actual reduction is limited to half of what your government pension pays you, but even so, if you're receiving a pension early in retirement, it can pay to wait on Social Security in order to avoid essentially forfeiting some of your benefits.
Keep in mind, though, that the age 70 rule doesn't apply to spousal benefits. With spousal benefits, the monthly amount maxes out at full retirement age, which is currently 66. After that, there's no incentive to wait. Therefore, the Government Pension Offset , which can take up to two-thirds of your spousal benefits check away, only gives you a reason to wait until age 66, not 70.
Many people simply take their Social Security benefits at their first opportunity. By doing so, they can miss out on thousands of extra dollars of benefits over the course of a lifetime. It's always worth at least considering whether waiting until age 70 is smart from a financial perspective before you simply apply for Social Security early.
Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.