As of September, more than 61 million people were receiving Social Security benefits each month -- 68% of which were retired workers. For a majority of these retirees, Social Security accounts for more than half of their monthly income, making it arguably America's most vital program.
For seniors, there's perhaps no decision more important than when they decide to claim Social Security benefits. Yes, your work history and earnings history do play a critical role in what you'll be paid in retirement benefits from the Social Security Administration (SSA), but your claiming decision could dramatically move the needle on what you'll eventually take home.
For those unfamiliar with Social Security, you can begin taking benefits as early as age 62, or any point thereafter. But the longer you wait, up until age 70, the more you'll be paid (based on your work and earnings history). Benefits grow by approximately 8% on an annual basis for each year that you wait to enroll. This means, all things being equal, an individual claiming at age 70 (benefits stop growing once you hit age 70) could bring home up to 76% more than an individual signing up as early as possible at age 62. And while there are plenty of good reasons to wait until age 70 to claim Social Security benefits, it's not for everyone.
Three claiming scenarios where waiting till age 65 makes sense
For some seniors, 65 is the perfect Social Security claiming age. Depending on your birth year, which is what determines your full retirement age -- the age where the SSA deems you eligible to receive 100% of your benefit -- claiming at age 65 could net you between 86.7% and 100% of your full retirement benefit.
While everyone's personal and financial situation is different, and there's no concrete claiming strategy with Social Security, let's have a look at three scenarios where claiming at age 65 might make sense.
1. Social Security will be used to supplement your retirement income
If you've done a good job of saving for retirement and investing for your future, and you'll be leaning on Social Security as a secondary, not primary, income source, then signing up at age 65 could be a smart move.
According to the SSA, Social Security income is only designed to replace about 40% of your working wages, with this percentage perhaps being a little higher for lower-income folks, and lower for higher lifetime earners. If your Social Security benefit would replace around 40%, or less, of your monthly expenses, and you have a nest egg that you believe can last for decades to come, then claiming at 65 might make sense.
On the flip side, workers who've done a poor job of saving for retirement and building their nest egg probably shouldn't consider enrolling at age 65. That's because it would mean accepting a permanently reduced payout, which isn't a good move if you're going to be heavily reliant on Social Security income during your golden years. Instead, working longer and allowing your benefit to grow until age 70 is ideal if you have an insufficient nest egg.
2. You're in good, but not great, health
While predicting our expiration date is nothing more than a crapshoot, we can certainly use our own health history, and that of our immediate family, to help guide us in our claiming decision.
According to the Centers for Disease Control and Prevention, the average American lives to be nearly 79 years old. Thus, your claiming decision often revolves around whether you believe you will or won't surpass this average. If you have a history of chronic health conditions, or your immediate family has failed to reach age 79, then an earlier claim could make sense for you. Conversely, if you're in excellent health, and your parents or grandparents lived into their 80s, 90s, or even past 100, waiting until after your full retirement age can boost your lifetime take home from Social Security.
But what about those folks who aren't in poor health, but they're not in excellent health, either. That's where enrolling at age 65 could make perfect sense. Waiting for three years allows your benefit to grow a bit from what it would have been had you claimed at age 62, and it'll potentially help maximize what you'll receive if you live to approximately the average life expectancy in the U.S., or a couple of years longer. Again, no one knows their expiration date with any certainty, but your health history can definitely come in handy when deciding when to sign up for benefits.
3. Your claiming decision only affects you
Another scenario where enrolling at age 65 could make sense is if your claiming decision would only affect you. In other words, if you're an unmarried senior, claiming at age 65 could be a viable option.
Why not claim at age 65 if you're married? Though it'll depend on your work and earnings history, waiting until your full retirement age to file for benefits -- which for most folks is between ages 66 and 67 these days -- especially if you're the higher-earning spouse, can put your significant other on better financial footing if you pass away first. Your spouse has the option of claiming a survivor benefit based on your earnings history if it results in a higher monthly payout than would be received from their own earnings history. If you wait until your full retirement age to claim Social Security benefits, you'll have given your spouse the opportunity to maximize what he or she can receive in survivor benefits.
But if you're an unmarried senior with no dependents to worry about, then claiming at age 65 could give you additional monthly income that you may be able to use for decades to come. The SSA notes that the average 65-year-old will live for just over 20 more years, giving you plenty of time to enjoy your monthly stipend. Plus, at age 65, you're still young enough to enjoy the added income.
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