Social Security provides a critical income stream for most Americans in retirement. Full benefits are available to retirees at their "full" retirement age, which is specified by the Social Security Administration. For most of us, it's 66 or 67 or somewhere in between. You can start collecting as early as age 62, though and as late as age 70. Here are three great reasons to file for Social Security benefits at 70.
Your checks will be bigger.
For every year beyond your full retirement age that you delay, your benefits will grow by about 8%. Delay from age 67 to 70 and you'll get benefits 24% bigger. If your full benefits would have been $2,000 per month, they would grow to $2,480, a lot more. That's a difference of $5,760 over a year.
Don't let this get you too excited, though. The Social Security Administration has noted , "If you live to the average life expectancy for someone your age, you will receive about the same amount in lifetime benefits no matter whether you choose to start receiving benefits at age 62, full retirement age, age 70 or any age in between." That's right -- for those who live average lifespans, it's pretty much a wash. After all, the checks you get if you start collecting at 62 or 67 might be a lot smaller than what you'd get at 70, but you'd get a lot more of them.
It can still make sense to delay. If people in your family tend to live extra-long lives, for instance, then you'd come out ahead by delaying and receiving larger checks.
You're still working.
Another great reason to file for benefits at 70 is if you're still working until then. That's because while Social Security benefit payments are generally not taxed, they can be taxed. That happens if your income over a year features not only Social Security benefits but also significant other sources, such as wages, self-employment income, interest, dividend income, and so on. You will never taxed on more than 85% of your Social Security benefits, and if the benefits make up all or vast majority of your income, you probably won't be taxed on them at all.
Following are the rules, per the IRS and the Social Security Administration. Note that "combined income" here refers to your gross income, plus nontaxable interest, plus half of your Social Security benefits.
- If you file your federal tax return as an unmarried individual and your combined income is between $25,000 and $34,000, you may have to pay income tax on up to 50% of your benefits. If your combined income tops $34,000, then up to 85% of your benefits may be taxable.
- If you file a joint federal tax return and your combined income is between $32,000 and $44,000, you may have to pay income tax on up to 50% of your benefits. If your combined income tops $44,000, then up to 85% of your benefits may be taxable.
- If you're married and file separate federal tax returns, you probably will be taxed on your benefits.
If you're working late in life and don't need that Social Security benefit income while you work, you might do well to delay starting to collect it, so that the checks can grow bigger.
You're providing for your spouse.
Finally, another great reason to file for Social Security benefits at 70 is if you're married and delaying is part of your joint Social Security strategy. Remember that a couple has more options than a single individual. They might claim one partner's benefits early, on time, or late, and do something else with those of the other partner. One might collect spousal benefits based on the other's earnings history, too.
One good strategy, if it makes sense in your situation, is to start collecting the benefits of the spouse with the lower lifetime earnings record on time or early, while delaying starting to collect the benefits of the higher-earning spouse. That way, the couple does get some income earlier, and when the higher earner hits 70, they can collect extra-large checks based on his or her earnings. Also, should that higher-earning spouse die first, his or her other half can collect his benefit.
Everyone's situation is different, so give the decision about when to start collecting Social Security careful thought. Starting early can make good sense for many people, but there are some great reasons to file for Social Security benefits at 70.