Most people can take Social Security as early as age 62, and a large percentage of Americans take full advantage of that opportunity as soon as possible. Yet there are good reasons to consider waiting longer before taking Social Security if you can afford to do so. Below, we'll look at three of the biggest advantages of delaying your benefits rather than claiming Social Security at 62.
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1. You can boost the size of your Social Security benefit
The most obvious reason to delay Social Security is that you can get larger monthly payments by waiting. Say you've just reached age 62 and you're eligible for $1,500 a month in Social Security benefits if you claim now. Waiting until your full retirement age of 66 would boost your monthly payments to $2,000. Wait until age 70, and your Social Security benefit would climb to $2,640 per month.
The thing to remember, however, that there's a trade-off to waiting. Your payments are larger, but you won't get as many of them. The reason why so many people choose to claim Social Security at age 62 is that it can take a long time for the larger payments you get by waiting to make up for all the payments you missed out on. For instance, if you file for benefits at age 70, you'll be in your early 80s before your total benefits received catch up to the total benefits you would have received by claiming at age 62. However, given that the average life expectancies of those reaching retirement age stretch well into the 80s, you could come out ahead in terms of total lifetime benefits if you file later.
2. You can increase what your loved ones will get from Social Security in survivor benefits
Social Security analysis often focuses only on the worker's own retirement benefits. But a big part of smart Social Security planning is considering what your spouse or other loved ones can get from Social Security after your death.
For instance, a surviving spouse is eligible for survivor benefits based on the benefit amount of the deceased worker. That figure incorporates the timing of the deceased worker's Social Security claim. Therefore a surviving spouse will see the same reduction in survivor benefits that the deceased worker got in retirement benefits from claiming early. Conversely, if the deceased worker delayed before taking Social Security, the surviving spouse's survivor benefits will be correspondingly higher. What that means practically is that even if your own life expectancy isn't all that long, you might still benefit from delaying if you expect your spouse to live a long life. For married couples, it's smart to think of Social Security as a family decision in an effort to maximize total benefits.
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3. You plan to keep working after taking Social Security benefits
Some people claim benefits at 62 even though they're still working, figuring they can benefit from increased income. However, there are rules that require the Social Security Administration to take back benefits if you earn above certain amounts. Specifically, for 2016, if you earn more than $15,720 and are younger than full retirement age for the entire year, then you'll lose $1 in annual benefits for every $2 you make above the $15,720 threshold. A higher limit of $41,880 applies if you reach full retirement age in 2016, and you lose $1 for every $3 above that higher threshold in that instance. The corresponding limits for 2017 are $16,920 and $44,880 respectively.
These rules only apply until you reach full retirement age. After that, you can work all you want and not lose any benefits.
Therefore, if you plan to work and have earnings that are considerably above those limits, then there's little reason not to delay taking Social Security. The way the system works is that to the extent that forfeited benefits add up to a month or more of your benefits, the Social Security Administration treats you as if you had chosen to claim one month later for every month of benefits you forfeit. That results in higher benefit payments later on. But especially if your earnings are high enough to forfeit most or all of them, there's no advantage in claiming early compared to just delaying your benefits.
Planning to delay your Social Security isn't always a viable option, especially if you need that extra income to make ends meet. However, if you're in a financial position to wait, then you should seriously weigh the benefits and drawbacks in the context of your personal situation.
