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Delaying Social Security Benefits Doesn't Always Mean a Bigger Total Payout

By Sean Williams – Apr 28, 2019 at 6:06AM

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Are you taking the right variables into account before claiming Social Security?

As seniors, we'll all have a number of important decisions to make. For example, deciding which state we'll call home during retirement, and picking out a Medicare prescription drug plan, or a Medicare Advantage plan, that best suits our needs. But there's arguably no decision that affects seniors more than deciding when to begin taking Social Security benefits.

Deciding when to take Social Security is a big decision

Although not all retired workers will receive a Social Security benefit, most will have earned the 40 lifetime work credits needed to receive a monthly payout. That's a good thing considering that 62% of today's retired workers rely on their monthly payout to account for at least half of their income.

A person filling out a Social Security benefits application form.

Image source: Getty Images.

But even taking into account a person's earning history, length of work history, and birth year -- three of the four major factors that ffeact your Social Security benefit check -- it's your claiming age that can play the biggest role in increasing or reducing your monthly payout.

The reason? The Social Security Administration give retirees incentive to be patient. For each year an eligible beneficiary holds off on taking a payout, that person's benefit can grow by up to 8%, up until age 70. All things being equal (i.e., birth year, earnings history, and work history), claiming benefits at age 70 can lead to a monthly payout that's up to 76% higher than a person claiming as early as possible, age 62.

Therefore, it's not surprising that one of the most commonly touted means of increasing your Social Security payout is delaying your application for benefits. Depending on your birth year, waiting until age 70 could yield a 24% to 32% increase over what you'd have been paid monthly at your full retirement age -- i.e., the age at which you're deemed eligible to receive your full payout by the Social Security Administration.

But the potentially surprising fact of the matter is that delaying your claim doesn't necessarily mean you'll receive a bigger total payout. Allow me to explain.

Two Social Security cards lying atop fanned piles of cash bills.

Image source: Getty Images.

Delaying your Social Security claim isn't always the answer

Though delaying the start of benefits will indeed increase the monthly payout of any eligible retired worker, it's not the only variable that needs to be considered. Rather than trying to maximize what you'll receive monthly from Social Security, beneficiaries should approach their claiming decision with the intent of maximizing what the program will pay them over their lifetime. Thus, in some instances, it may not be worth forgoing up to eight years of monthly benefits, even if they're reduced, to receive a larger monthly check.

As an example, if you have one or more chronic health conditions (diabetes, heart disease, cancer, and so on), you may not reach the average life expectancy of nearly 79 years in the United States. While the average life expectancy isn't a concrete line, it does act as a very loose inflection point that can help you decide when to take your benefit. If taking reduced benefits at age 62 or boosted benefits at age 70, the lifetime benefits you'll have received by roughly age 78 to 80 will be equal. Thus, if you live longer than age 80, delaying benefits will have been a better option, in terms of maximizing your lifetime payout. But if you won't reach your late 70s, an early filing should allow you to get the most possible out of Social Security, even with a permanently reduced monthly payout. Then again, this is all somewhat of a crapshoot since none of us (thankfully) knows our expiration date.

Another reason an early claim might make perfect sense is if you have limited earning capacity or no other sources of income. Even though the unemployment rate for seniors is low, there's no guarantee that you'll be able to land a well-paying job if you're out of the workforce. That might leave older workers with limited retirement savings little choice but to claim their Social Security benefit early.

A senior couple embracing one another.

Image source: Getty Images.

Delaying Social Security benefits may also not make sense for certain spouses. In instances where a large earnings gap exists between two spouses, it's not uncommon for the lower-earning spouse to take their benefit early in order to generate income for the household. All the while, this gives the higher-earning spouse's benefit time to grow at up to 8% a year, which is perfect since it'll have a greater impact on the household's income during retirement.

The point being that delaying a Social Security claim doesn't always mean getting more out of the program throughout your lifetime. Multiple variables, including your health, marital status, and financial well-being, all need to be weighed before making your final decision.

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