One of the most important decisions you'll make in retirement is when to start claiming your Social Security benefits. Most people don't wait long after turning 62 to get those monthly checks started, even though they have to accept a considerably lower amount as a result.
Personally, I've always been one to look for the potential upside of delayed gratification. That doesn't mean going without for no reason, but it does mean that when there's an opportunity to earn a big win for my family as a whole, I don't hesitate to go after it. As a result, I'm pretty certain that I'll wait until 70 before claiming Social Security. Here's my thought process.
1. I have other savings to pay for retirement expenses
Many people don't have the luxury to be able to decide when they can claim Social Security. When they stop working -- or even before they retire -- the money that Social Security provides fills key gaps in their financial needs. Without claiming Social Security at the earliest possible opportunity, less attractive alternatives, like borrowing at high interest rates, would be the only choice they have.
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I've been more fortunate in that I've saved up a healthy nest egg for my retirement needs. That gives me the choice of spending down that savings during my 60s while letting my future Social Security benefit grow. By waiting until age 70, I'll maximize the delayed retirement credits I can earn, boosting by 24% what I'd get at my full retirement age of 67.
2. I'm more concerned with what my family will get than what I get
Another aspect that most people look at to decide when to take Social Security is what their life expectancy is likely to be. On that score, the odds are stacked against me somewhat: One of my parents died in their mid-60s and the other in their early 70s. If I were trying to maximize only my own retirement benefit, claiming early likely would be a smarter choice based on family history.
However, the decision that I'll make affects not only my own retirement benefits, but also the survivor benefits that my spouse will collect after my death. My spouse's family has a much better history of longevity than my own, so I'm as confident as I can be that when you combine benefits paid to my spouse and me, waiting will result in a higher overall payout.
3. Waiting will help with tax and pension planning
Finally, I happen to be in a situation in which claiming Social Security benefits early could have financial downsides. On one hand, my spouse works in the public sector and doesn't pay Social Security payroll taxes. That makes us subject to a much-hated Social Security provision called the Government Pension Offset, which can take away some or all of the Social Security benefits that my spouse would otherwise be able to collect based on my work history. The longer I wait to claim, the longer my spouse won't be subject to the Government Pension Offset -- and when payments do start coming in, they'll be big enough that the negative impact won't necessarily wipe out the Social Security benefit entirely.
In addition, I expect that the combination of work and investment income in my early 60s would put me in line to pay income taxes on Social Security benefits. By waiting until 70 to claim Social Security, I can manage withdrawals from traditional IRAs and 401(k) plans early in retirement in order to optimize taxes over the years. By the time benefits start coming in, I expect that my taxable income will be more manageable, reducing the chance of losing Social Security to tax.
Be ready for whatever comes
Obviously, it's impossible to predict with absolute certainty what your life will look like years or even decades down the road. But having a plan lets you move in the right direction while maintaining the flexibility to change course as circumstances warrant. Planning to wait until age 70 is an aspirational goal that I'm confident I can achieve.
