If you know anything about Medicare, you're probably aware that seniors aren't eligible for coverage until they turn 65. But Social Security works differently. With Social Security, you get an eight-year window to sign up for benefits that begins when you turn 62 and wraps up at 70. And there are advantages to waiting as long as possible to file.
See, your Social Security benefits themselves are calculated based on how much you earned during your most lucrative 35 years on the job. But once your total monthly benefit amount is established, you need to wait until what's considered full retirement age to collect that money in full.
Full retirement age is based on year of birth, and for today's workers, it's either 66, 67, or 66 and a certain number of months. But again, you don't have to claim benefits at precisely full retirement age. You can file ahead of schedule and get your money sooner, at which point your benefits will be reduced. Or you can do the opposite: Wait as long as possible to take benefits, and boost them in the process.
The beauty of filing for Social Security at 70 is that for each year you hold off past full retirement age, your benefits go up by 8%. That means if your full retirement age is 67 and you're entitled to $1,500 a month, waiting until 70 will convert those payments to $1,860 -- for life. And that's a pretty sweet deal. Yet surprisingly, the vast majority of seniors don't take it. In fact, just 2% of men and 4% of women claim Social Security at 70. But while some of those folks who aren't waiting till 70 are making a mistake, there are certain circumstances under which filing that late doesn't make sense.
Reasons to wait until 70
Clearly, the best reason to delay your Social Security benefits as long as possible is to snag the boost we just talked about. Therefore, if you've reached full retirement age, are still working (and therefore still have a steady source of income), and don't need the cash for another pressing reason, it pays to wait until 70 and get more money out of Social Security each month down the line.
Another reason to consider waiting until 70 to take benefits is if your savings are low, or nonexistent. Social Security was never designed to sustain retirees financially. Rather, those benefits are supposed to supplement your personal savings. But if those savings aren't much to write home about, then it's critical to get the most money possible out of Social Security.
Along these lines, holding off until 70 to take benefits might push you to work longer. And that's a move that could end up being good for your health, especially since retirees are 40% more likely to suffer from clinical depression than folks who work.
Reasons to file before 70
Older workers are often encouraged to hold off on Social Security because doing so offers a risk-free way to boost their benefits. But actually, there is a risk to waiting that long, and it has to do with longevity.
One little-known fact about Social Security is that the program is designed to pay you the same amount in lifetime benefits regardless of when you first file. The logic is that while waiting will boost your individual payments, you'll also collect fewer payments in your lifetime, thus creating a situation where most filers pretty much break even. This formula, however, assumes one key thing, and it's that you live an average life expectancy. But if you pass away at an earlier age, you'll end up losing out on lifetime benefits.
For example, if your full retirement age is 67 and your full monthly benefit amount is $1,500, filing right then and there will give you $1,500 a month but nothing more. If you wind up living until 82 1/2, you'll collect a total of $279,000 from Social Security. Similarly, if you wait until age 70 to file for benefits, thus boosting each monthly payment to $1,860, you'll also come away with $279,000 when you reach 821/2.
But what happens if you don't live that long? What if you pass away at 74? Suddenly, filing at 70 will end up costing you close to $37,000 in lifetime benefits you fail to collect.
That's why it's rarely a good idea to claim benefits at 70 when your health starts out poor. Though it's impossible to predict how long you'll live, take your less-than-stellar health as a sign that you ought to file for Social Security sooner.
Another reason not to wait until 70? If you're out of work and need the money to pay the bills, you're better off taking benefits than racking up costly credit card debt -- debt that could otherwise continue to haunt you throughout retirement.
Ultimately, whether it makes sense to claim Social Security at 70 will boil down to personal factors. Filing at 70 could be a great move for one person, but a terrible idea for the next. Your best bet, therefore, is to understand the pros and cons of waiting that long, and make an informed decision.