It's estimated that nearly half of Americans age 55 and older are without retirement savings. If you're one of them, and you don't have much time left in the workforce, then you may have no choice but to cross your fingers and hope that Social Security does a good enough job of paying your living expenses once you stop working.
The problem, of course, is that those benefits are not meant to sustain retirees by themselves. They'll replace about 40% of your former income if you earned an average wage during your career, but most seniors need a good 70% to 80% of their previous income to live comfortably. Still, there is one thing you can do to get more money out of Social Security, and compensate somewhat for your lack of savings: Delay benefits as long as you can.
Social Security: It pays to wait
Your Social Security benefits are calculated based on your 35 highest-paid working years. The age you claim those benefits at, however, could alter your monthly payout, for better or for worse.
If you file for Social Security at full retirement age, you'll get the exact monthly benefit you're entitled to based on your earnings history. That age is either 66, 67, or 66 and a certain number of months, depending on the year you were born.
Now you're allowed to claim benefits as early as age 62, but for each month you file before full retirement age, your benefits will be reduced by a small percentage that can add up over time. For example, filing at 62 with a full retirement age of 67 will give you 30% less Social Security income each month.
On the other hand, if you delay benefits past full retirement age, you'll accrue what are known as delayed retirement credits. These credits boost your Social Security benefits by two-thirds of 1% for each month you hold off on filing after reaching full retirement age so that you're effectively increasing them by 8% each year.
Now the one drawback with delayed retirement credits is that they stop accumulating once you turn 70. This means that if your full retirement age is 67, the most you can do is boost your benefits by 24%. If it's 66, then you'll max out at a 32% increase. Still, it's a smart way to grow your benefits, especially if you expect them to be your primary or only source of retirement income.
How might that increase in benefits play out? Imagine you're entitled to $1,461 a month in benefits, which is what the average Social Security recipient gets today. If your full retirement age is 67, and you delay benefits all the way up until age 70, you'll bring your monthly payments up to $1,812. That's a yearly income of $21,744, as opposed to the $17,532 you'd get by claiming your $1,461 a month at full retirement age.
Even if you can't manage to delay your benefits until age 70, holding off even a little on filing could bump them up ever so slightly. And if you're in a position where you don't have much, or any, other income to access in retirement, then a modest increase in benefits is certainly better than no increase at all.