The decision to start collecting Social Security shouldn't be taken lightly. As many as 65% of beneficiaries rely on Social Security to provide the majority of their retirement income, and it's the only source of income for almost 25% of Americans 65 and older. While you can take Social Security as early as 62, doing so results in a reduction in benefits.
On the flip side, waiting past your full retirement age (which, for those born in 1943 or later, is 66, 67, or somewhere in between) will increase your benefits by 8% for every year you hold off. Once you reach age 70, however, the incentive for delaying your benefits runs out, which is why 70 is considered the latest age to claim Social Security. And while there are plenty of good reasons to hold off until 70 to collect benefits, here are three bad reasons to wait.
1. You think you'll get more money by waiting
The only real incentive to delay Social Security is that doing so could result in a pretty significant boost in benefits for life. Let's say you'd get $2,000 a month in Social Security if you were to claim your benefits upon reaching your full retirement age of 67. If you wait until 70 to start taking those benefits, you'll increase that payment to $2,640.
Obviously, having an extra $640 a month can really help in retirement. But keep the following in mind: Whether you claim early, late or exactly on time, the Social Security Administration expects that you'll wind up breaking even in terms of lifetime benefits. Or, to put it another way, you won't necessarily end up with more money by increasing your monthly benefit but missing out on several years of payments.
This argument is definitely one to consider if your health is questionable, or if your family's genes don't typically lend to living well into your 80s or 90s. The Social Security Administration anticipates that the average 65-year-old man today can expect to live until 84.3, while the average 65-year-old woman can expect to live until 86.6. But because these are just averages, you must consider the unfortunate but real possibility that you may not make it to 84 or 86.
Let's say you claim your $2,000 a month starting at age 67 and live until 79. At that point, you'll have collected a total of $288,000 in lifetime benefits. But if you start collecting $2,640 a month at age 70 and live until 79, you'll get a total of just $285,000 in lifetime benefits. Holding off on Social Security is a pretty big gamble, so unless you really like your odds, you may be better off claiming on time or even early.
2. You're still working and don't want your benefits reduced
Some people assume that if they start taking Social Security while they're still working, their benefits will be reduced. In reality, this only applies if you begin taking benefits before you reach your full retirement age.
If you wait until your full retirement age to collect benefits, you can earn as much as you're able to, and it won't impact your Social Security payments in the slightest. So if your full retirement age is 67 and you start taking benefits a month after your birthday to supplement your income, you won't lose out on a penny.
3. You can technically get by without the extra money
Perhaps you're willing to cut corners so you can get by without Social Security during the early years of your retirement. While that's certainly a respectable approach, chances are you deserve better. Just because you don't absolutely need that money doesn't mean it can't buy you the happiness you've worked hard to enjoy.
Think about it: You're more likely to be in better health and have the energy to enjoy travel and entertainment during the earlier part of your retirement. Why shouldn't you therefore use your Social Security benefits to indulge some of your interests?
If you have more than enough savings to fund the retirement of your dreams, then by all means, hold off until 70 to collect Social Security. Similarly, if you're working and don't need the extra income, or if your parents, grandparents, and great-grandparents all lived well into their 90s, then there's no reason not to delay Social Security and get the maximum possible benefit. But if you've reached your full retirement age and those benefits can improve your day-to-day picture as a retiree, there's no reason not to take what's yours.