Millions of retirees depend on Social Security benefits to make ends meet during their senior years. The average Social Security recipient receives just over $1,500 per month in benefits, and nearly one-quarter of married couples and close to half of unmarried beneficiaries rely on this money for at least 90% of their income in retirement, according to the Social Security Administration.
However, Social Security is facing serious financial challenges that have only been exacerbated by the coronavirus pandemic, so you may not be able to depend on your benefits as much as you expect to in retirement. That means it's wise to take action now and start planning for how you'll maximize your monthly checks -- but few older Americans are planning to take advantage of this one benefit-boosting strategy.
The Social Security strategy that could increase your benefits for life
The age you begin claiming retirement benefits has a lifelong impact on how much you receive each month. When you claim at your full retirement age (FRA) -- which is age 67 for those born in 1960 or later, or either 66 or 66 and some number of months for those born before 1960 -- you'll receive the full benefit amount you're theoretically entitled to collect. But if you claim before or after that age, it will affect your monthly benefit amount.
You can file for retirement benefits as early as age 62, but your checks will be reduced by up to 30% if you claim that early. This benefit reduction is permanent, too -- meaning you won't start collecting your full benefit amount once you reach your FRA, as some retirees mistakenly believe.
Delaying retirement benefits, on the other hand, will result in a permanent boost in benefits. If you have an FRA of 66 years old and claim at age 70, you'll collect your full retirement benefit amount plus an additional 32% every month for the rest of your life.
Delaying retirement benefits can be a smart strategy, yet only 23% of workers in their 50s and 60s expect to take this Social Security approach, according to a recent survey from SimplyWise. In addition, 58% of survey respondents said they don't believe Social Security benefits will allow them to continue living the same quality of life they're accustomed to. In other words, although the majority of people realize it will be tough to live comfortably on Social Security benefits, less than one-quarter of those nearing retirement plan to maximize their benefits by waiting to claim.
Is delaying retirement benefits the right choice for you?
Waiting until past your FRA to claim retirement benefits can be a smart decision for many people, but it's not always the right choice for everyone.
If you don't have much in savings and are worried about how you'll afford to retire, delaying might be a wise move. You could potentially receive hundreds of dollars more per month by waiting, and that money can go a long way if you're strapped for cash in retirement.
Additionally, delaying benefits may be a good choice if you expect to live a very long life. In theory, you should receive roughly the same amount in lifetime benefits regardless of when you claim. Claim early, and you'll receive smaller checks but more of them over a lifetime, or delay benefits and receive fewer but bigger checks. However, this calculation assumes you'll live an average lifespan, or around 85 years, according to the Social Security Administration. If you have reason to believe you might live longer than that, you could come out ahead by delaying benefits and earning those bigger checks.
On the other hand, if you think you'll live a shorter-than-average life or have a robust retirement fund and don't necessarily need the extra benefits, claiming earlier might be the right move. Some people also may not have a choice in when they retire, so if you're forced into an earlier-than-expected retirement and need the cash, you might need to claim early.
Also, keep in mind that not all Social Security benefits rise if you delay past FRA. Spousal benefits, for example, aren't entitled to delayed retirement credits. You won't get a bigger spousal benefit payment by waiting until 70 than you would if you claimed at FRA.
No matter when you choose to start claiming Social Security benefits, make sure you've put some thought into your decision. Delaying benefits can be a smart move in some situations, and by taking advantage of this strategy, you can boost your retirement income for life.