3 Reasons to Delay Taking Social Security

"At times it is folly to hasten at other times, to delay.
The wise do everything in its proper time."
-- Ovid 

We can't control everything in our financial and working lives, but there are some things we can control -- at least to some degree. For example, you might start collecting Social Security benefits whenever you retire, if you're eligible then -- or you might, instead, have a thought-out plan for when you'll start collecting. There are, after all, some good reasons to consider delaying your Social Security benefits.

Image source: Getty Images.

Here are three reasons why you might not want to start receiving Social Security income as soon as you're able to.

Social Security basics

Social Security pays close to 62 million Americans about $955 billion in benefits annually. That sure sounds like a lot, but it's only about $15,400, on average, per person. Indeed, the average monthly retirement benefit was recently $1,370, or $16,440 per year. If your earnings have been above average, you'll collect more than that -- but the overall maximum benefit for those retiring at their full retirement age was recently $2,687 per month -- 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). That used to be 65, but it has been increased for many of us. For those born in 1937 or earlier, it remains 65; for those born in 1960 or later, it's 67; for those born between 1937 and 1960, it's somewhere in between. You can start collecting retirement benefits as early as age 62, though, and as late as age 70.

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

You can control the size of your Social Security checks, to some degree: 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 your checks will be about 24% bigger. If your full benefits would have been $2,000 per month, they would grow to $2,480 -- that's a meaningful difference of $5,760 over a year.

Benefits that are 8%, 16%, or 24% bigger can certainly make it seem like a no-brainer decision to delay, but hold on. Yes, the checks will be bigger, but you'll receive fewer of them, overall, since you start receiving them later. Here's an underappreciated fact: According to the SSA, "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." So for those who live average lifespans, it's pretty much a wash, and collecting at 62 can be perfectly sensible. (That's one of several good reasons to start collecting Social Security early.)

Few of us know just how long we'll live, though. If you think you stand a decent chance of living an extra-long life, delaying and receiving larger checks could be a good move -- if you can do it.

Image source: Getty Images.

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

Next, you might also want to consider delaying starting to collect Social Security if you're still working. Social Security benefit payments are generally not taxed, but 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, but you could be taxed on up to 50% or 85% of them. If Social Security benefits make up all, or the 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:

Data 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.

Working in retirement, at least a little, can generate welcome extra income. And just keeping your full-time job for a few more years, while postponing retirement entirely, can also vastly improve your future financial health. Check out how much more money you might accumulate:

Data source: Calculations by author.

Image source: Getty Images.

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

A last good reason to delay starting to collect your Social Security benefits is if doing so is part of a spousal strategy. Married couples have more options when it comes to collecting Social Security benefits than single individuals -- though widows and divorced people also have some extra options -- so if you're married, be sure to coordinate a strategy with your spouse. This can be especially valuable if there's a great disparity in the earnings history of the two partners, or if there's a great difference in ages.

For example, if two spouses are collecting benefits and one dies, the surviving spouse can collect the higher of the two benefit amounts. Thus, it can be smart for at least one spouse -- ideally the one who has been the bigger earner -- to delay collecting benefits in order to increase the size of their eventual checks. This can be especially valuable if one spouse earned a lot less in his or her working life than the other. If the spouse with the bigger benefit check dies first, the surviving spouse can collect that bigger benefit check instead of the smaller one.

Take some time to learn more about Social Security and to think through your options. With the right strategy, you might end up with thousands of dollars more each year in retirement.