Your Social Security benefits are calculated based on how much you earned during your 35 highest-paid years in the workforce. Once your monthly benefit is determined, you can collect it in full upon reaching full retirement age, or FRA. That age is either 66, 67, or somewhere in between, depending on the year in which you were born.
Seniors can file for Social Security well ahead of FRA -- the earliest age to claim benefits is 62, and it's also the most popular age to file. But filing early causes a lifelong reduction in benefits, so it's a move that can hurt seniors more than it helps them.
On the other hand, there's also the option to delay benefits past FRA. Here are a few things you should know if you're considering going that route.
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1. You can score an 8% boost each year you wait
When it comes to Social Security, waiting to file pays off. When you hold off on taking benefits past FRA, you accrue delayed retirement credits that are worth 8% per year. If you're looking at an FRA of 66 but you wait until age 70 to file, you'll boost your benefits by 32%. If your FRA is 67 and you file at 70, you're looking at a 24% boost. And any increase you snag is permanent.
2. Waiting makes sense if your health is great
Social Security is technically designed to pay you the same lifetime total regardless of whether you file for benefits early, late, or on time. The logic is that reductions or boosts by filing early or late are offset by getting a greater or smaller number of monthly payments so that over an average lifespan, things all even out. But if you're likely to live a longer life than the average senior, delaying your filing makes a lot of financial sense.
Imagine you're entitled to a monthly benefit of $1,500 at an FRA of 67. Filing at age 70 will boost that benefit to $1,860, and you'll break even under both filing scenarios once you turn 82 1/2. But if you live until 88, you'll come out almost $24,000 ahead in your lifetime by delaying benefits until 70. That's why if your health is great, it often pays to hold off.
3. You should only delay your filing up to a point
Filing for Social Security at age 70 often makes sense. Waiting past 70 to claim benefits doesn't.
Delayed retirement credits stop accruing once your 70th birthday arrives, which means that if you don't file immediately at that point, you risk losing out on income you were otherwise entitled to. The Social Security Administration will pay seniors up to six months of retroactive benefits, so if you fail to file at exactly 70 but do so a few months later, you'll be paid back the benefits you should've been receiving. But either way, make sure to file at 70, since there's no sense in delaying further once you reach that age.
If you want to boost your monthly retirement income for life, delaying Social Security is a good way to go about it. Just make sure you're aware of the rules involved so you make the best decision for your senior years.
