3 Reasons to Delay Taking Social Security

Social Security is a critical retirement safety net for Americans, but don't just assume that it is what it is and that you don't have much say in how it serves you. You have the power to boost -- or shrink -- your benefits.

Much of your power lies in when you start collecting Social Security income. Here are three reasons to delay taking Social Security -- and some reasons why you might not want to delay.

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Social Security 101

Social Security pays close to 61 million Americans about $918 billion in benefits annually. That sure sounds like a lot, but it's only about $15,000, on average, per person. Indeed, the average monthly retirement benefit was recently $1,360, or $16,320 per year. If your earnings have been above average, you'll collect more than that -- but the overall maximum monthly Social Security benefit for those retiring at their full retirement age in 2016 is still just $2,687 -- or about $32,000 for the whole year.

You're eligible to receive your full Social Security benefits at your "full" retirement age, which is specified by the Social Security Administration (SSA). 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.

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Reason No. 1 to delay: You'll receive fatter checks

For every year beyond your full retirement age that you delay starting to collect Social Security, 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 -- that's a difference of $5,760 over a year.

That can make it seem like a no-brainer decision to delay, but hold those horses. According to the SSA, "If you live to the average life expectancy for someone your age, you'll 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 and collecting at 62 can be perfectly sensible. 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'll get a lot more of them.

It can still make sense to delay, though. 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. And if you're financially comfortable enough to live without Social Security until age 70, then waiting may pay off. (Remember, though -- there are also some good reasons to start collecting early.)

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Reason No. 2 to delay: You're still working.

Another solid reason to delay starting to collect Social Security is if you're still working. 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'll never be taxed on more than 85% of your Social Security benefits, and if the benefits make up all, or a vast majority, of your income, you likely won't be taxed on them at all.

To determine whether you'll have to pay taxes on Social Security benefits, you need to calculate your "combined" income, which is your Adjusted Gross Income ("AGI"), plus non-taxable interest, plus half of your Social Security benefits. The table below shows the taxation you can expect:

Source: Social Security Administration. 

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.

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Reason No. 3 to delay: You're married and you're being strategic.

Finally, another smart reason to file for Social Security benefits late is if it's part of a spousal strategy. Married couples have more options when it comes to Social Security benefits than single individuals do (though widows and divorced people also have some extra options). A couple might claim one partner's benefits early, on time, or late, and do something else with those of the other partner.

For example, one good strategy 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, the surviving spouse can collect his benefit.

Deciding when to start collecting Social Security is a major decision, as the timing affects how big each check will be. Be smart about when you start collecting this retirement income, and you may end up with thousands of dollars more.