When you near retirement or you decide to leave the workforce, you have an important decision to make: when to start collecting your Social Security benefits. For many current and future retirees, claiming Social Security at age 70 may seem like the best approach. After all, if you wait until 70, you can earn delayed retirement credits to receive a higher monthly income.
While claiming at 70 can make sense in some situations, it's the wrong choice in many other circumstances. In fact, there are lots of good reasons why claiming benefits earlier is the smarter move. If you're not sure what's right for you, check out these three reasons why claiming at age 70 might be a bad approach.
1. You're gambling on living a really long time
It's irrefutable that your monthly Social Security benefit will be bigger if you claim at age 70 than if you claim at age 62 -- the earliest age you're eligible to claim benefits. But if you wait until age 70, you pass up eight years of income.
Forgoing eight years of benefit checks is only worth it if you eventually receive enough money in extra monthly benefits to make up for all those years you got nothing. And to receive enough extra monthly benefits to make up for those years of missed money, you have to live a long time.
It would take you more than 10 years to recover all the Social Security income you could've received from age 62 to age 70, based on this chart that shows the breakeven point for each age. If you don't live past 80, you're going to end up losing out. Since life expectancy in the U.S. is about 78.6 years, according to the Centers for Disease Control and Prevention (CDC), you must live longer than average in order to make up for the missed benefits.
No one can accurately predict how long they will live, so it's a big gamble to assume you'll make up the Social Security benefits you missed from waiting.
2. You're missing out on extra money during the best part of your retirement
The early years of retirement are often the most fun years of retirement. When you first leave the workforce, hopefully, you're still healthy enough to travel and enjoy your hobbies. As you get older, health issues are much more likely to prevent you from living life to the fullest.
Eight in 10 people who'd been retired for a decade or more indicated health problems occurred sooner than expected, and more than one-third of recent and long-term retirees indicated health problems interfered with their retirement, according to a Nationwide Insurance survey,
If you wait to claim Social Security, and this choice leaves you without the funds to make the most of your early retirement years, you may have regrets if your declining health prevents travel or other adventures later in life.
3. You could deplete your savings too fast
Many people are forced to retire well before age 70 because of health issues or the inability to land a job.
If you try to delay claiming Social Security, you still need money to live on in the meantime -- which means you'll have to rely on your personal savings. Taking too much money from your retirement accounts too quickly can become a problem. You could find yourself having depleted your principal balance, and having little to nothing left to supplement your Social Security income in later years.
Experts recommend taking no more than 4% out of your investment accounts in the first year of retirement and then increasing withdrawals based on inflation each year. If you'd need more than that to survive without Social Security benefits, you're likely better off claiming benefits early and not drawing too heavily from your investment account balances in your early retirement years.
Don't assume waiting to claim Social Security is always a smart move
As you can see, waiting to claim Social Security isn't always the best choice -- and there are plenty of reasons why you might decide claiming at a younger age is better. Just make sure you look at the big picture and understand how your age affects the benefits you'll get so you can make an informed choice about what makes sense for you.