Countless workers eagerly await the day when they'll be eligible to file for Social Security, and while you're allowed to take benefits as early as age 62, doing so will lower the amount you get from the program each month. Though you get an eight-year window to claim Social Security that begins at 62 and ends at age 70, very few people opt for the latter end of that range. In fact, just 3% of seniors file at 70 even though waiting that long results in an automatic boost in benefits.
Specifically, you'll snag an 8% increase in payments for each year you hold off past your full retirement age, which is either 66, 67, or 66 and a number of months depending on the year you were born. So let's say your full retirement age is 67, but you wait until 70 to file. If your full monthly benefit at 67 is $1,500, then delaying until age 70 turns that sum into $1,860 -- for life.
So why don't more seniors aim to capitalize on this incentive? Here are a couple of reasons why most folks wind up taking benefits sooner.
1. Many workers retire earlier than planned
Waiting until age 70 to file for Social Security is a great idea in theory, but what happens if you lose your primary income source before then? It's a reality most working folks face. Believe it or not, an estimated 60% of seniors are forced to retire sooner than planned, and the reasons run the gamut from employer downsizing to health issues to needing to care for loved ones.
Furthermore, most folks don't have the savings on hand to support themselves in the absence of a full-time job. The median savings balance among households aged 56 to 61 is a mere $17,000, which, in most cases, isn't enough to cover the bills for even a single year. Therefore, it's not surprising that so many seniors rush to claim Social Security before age 70 -- they simply can't hold out that long because they don't have the money to support themselves otherwise.
2. Many folks worry that Social Security is going broke
The future of Social Security might seem somewhat bleak compared to what we're looking at today. That's because come 2034, the program's trust funds will most likely be depleted, at which point Social Security may need to slash benefits to compensate. Since none of this is a secret, those concerned about Social Security going broke will often rush to take benefits as early as possible, while the program is still capable of paying them.
It's not the craziest line of thinking -- but it could be a costly one. Let's review the facts. Social Security is funded heavily by payroll taxes, which means that as long as there's a U.S. workforce, the program will take in revenue. As such, Social Security can never truly go broke. Furthermore, because we're a good 16 years away from those trust funds running out of money, it's fair to say that lawmakers will manage to put their heads together and come up with a solution to avoid future benefit cuts.
In other words, rushing to take Social Security sooner than necessary for fear of losing out on that money later could end up hurting you financially, because if benefits aren't slashed in the future, you'll have missed out on the aforementioned annual 8% boost for no good reason. And since most people need the extra cash in retirement, that's a big loss to bear.
Waiting could pay off in a very big way
If you're in great shape financially and aren't really counting on Social Security to pay the bills in retirement, then it may not matter when you first file for benefits. But if you expect those benefits to constitute the bulk of your retirement income, then it pays to wait as long as possible in order to boost your monthly payments.
Now this isn't to say that waiting is always the best move. If your health is poor, for example, and you expect to pass away sooner than the average person your age, it pays to claim your benefits sooner, because doing so will probably result in a higher lifetime payout. Otherwise, aim to hold off -- and reap the rewards for the rest of your life.