If you have financial flexibility, then the simplest way to maximize how much money you get in Social Security income is to hold off on claiming your benefits until you reach age 70. If you wait, Social Security will give you delayed retirement credits that can increase your benefit by up to 8% per year. The exact amount you'll receive in Social Security at age 70 will depend on two things: your full retirement age benefit and when you were born.
Delayed retirement credits are a great investment
You can collect Social Security as young as age 62, but you only qualify for 100% of your Social Security benefit at your full retirement age. If you were born between 1943 and 1954, your full retirement age is 66 years. If you were born after 1955, then it ranges between age 66 and 2 months to age 67.
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If you claim earlier than full retirement age, your benefit is reduced. However, if you claim later than your full retirement age, Social Security will increase your benefit by two-thirds of 1% for every month you wait, up until age 70. Overall, the monthly increase works out to about an 8% increase per year, if you were born after 1943.
A guaranteed 8% annual return is pretty darn good. Since 2000, the average annual return of the S&P 500 index has been 6.14%, and the compounded annual return, which takes into consideration the impact of up and down years on your investment, is only 4.47% over the period.
The 8% return becomes even more attractive when you consider that the 4.47% compounded annual return reflects a portfolio that's 100% invested in stocks. Most advisors recommend that people balance their investments between stocks and bonds when they get older, and since bonds historically return less than stocks, the compounded annual return of a balanced portfolio is even lower.
The following table gives you an even better idea of how waiting until 70 will affect your Social Security income. It shows you how much more you can get by waiting until 70 to claim, in percentage terms, depending on your birth year. If you were born between 1943 and 1954, delaying until 70 nets you a check that's 132% of the amount you would receive at full retirement age. Thus, if your monthly full retirement age benefit is $1,000, waiting until age 70 would get you a check for $1,320 per month, and if you were born in or after 1960, waiting would get you a check for $1,240 per month.
| Birth Year | Full Retirement Age | % Paid If Claiming at 66 | % Paid If Claiming at 67 | % Paid If Claiming at 70 |
|---|---|---|---|---|
| 1943-54 | 66 | 100% | 108% | 132% |
| 1955 | 66, 2 months | 98 8/9% |
106 2/3% |
130 2/3% |
| 1956 | 66, 4 months | 97 7/9% |
105 1/3% |
129 1/3% |
| 1957 | 66, 6 months | 96 2/3% |
104% | 128% |
| 1958 | 66, 8 months | 95 5/9% |
102 2/3% |
126 2/3% |
| 1959 | 66, 10 months | 94 4/9% |
101 1/3% |
125 1/3% |
| 1960 and later | 67 | 93 1/3% |
100% | 124% |
Data source: Social Security Administration.
If you compare the amount you can get at age 70 to the amount you'd receive if you claim at age 62, then waiting becomes even more compelling. If your full retirement age is 66, your full retirement age benefit is $1,000, and you claim at age 62, your benefit would be reduced by 30%, so your monthly check would only be $700. Therefore, waiting until age 70 would result in a check that's 88% bigger!
Is waiting the best decision?
Everyone's situation is different, so the age at which its best to claim Social Security benefits depends on many factors, including your health, retirement goals, sources of retirement income, expenses, and the break-even points associated with various claiming ages.
Having said that, waiting can pay off with an attractive guaranteed return that matches up quite favorably to the returns of stocks and bonds this century. For that reason, delaying until age 70 could make a lot of sense.
