Your monthly Social Security benefit is calculated based on the wages you earn during your top 35 years in the workforce. From there, you're entitled to collect that benefit in full once you reach full retirement age, or FRA. FRA hinges on your year of birth, and if you were born in 1960 or later, it's 67.
Of course, you don't have to claim benefits at FRA. You can sign up starting at age 62, but for each month you file ahead of FRA, your monthly benefit gets reduced. On the other hand, if you hold off on filing past FRA, your monthly benefit will grow by 0.66% percent a month, which amounts to 8% a year. If your FRA is 67 and you wait until 70 to sign up for Social Security, your monthly benefit will end up 24% higher -- and that boost will remain in effect for the rest of your life. Talk about tempting.
But despite the upside of claiming Social Security at 70, it may better suit you to file at a younger age. Here's why.
You can't predict your own lifespan
Delaying Social Security may mean scoring a higher monthly benefit -- but it doesn't necessarily mean snagging a higher lifetime benefit. In fact, if you pass away at a somewhat young age, you'll actually lose out on lifetime income by delaying your filing until 70.
Let's imagine you're entitled to a monthly benefit of $1,500 at an FRA of 67. If you were to claim that benefit at age 62, it would shrink to $1,050, whereas delaying it until 70 would let it grow to $1,860.
But if you were to pass away at the age of 78, which is considered relatively young given today's life expectancies, here's what you'd be looking at in terms of lifetime income:
- Filing at 62 would leave you with $201,600
- Filing at 67 would leave you with $198,000
- Filing at 70 would leave you with $178,560
In fact, for filing at age 70 to make sense for you financially, you'd need to live beyond age 82 1/2 -- only then will you come out ahead in terms of your lifetime benefit by signing up as late as possible. And that's why waiting until 70 may not be your best bet. While it's natural to hope that you'll live as long as possible, there's unfortunately no guarantee it will happen. And by waiting to collect Social Security, you're taking the risk that you may lose out on lifetime income that otherwise could've been yours.
Now to be clear, this isn't to say that you absolutely shouldn't file for Social Security at age 70. The point, however, is that before you get caught up in the idea of a higher monthly benefit, consider the big picture -- your lifetime benefit. Filing at an earlier age might put more money in your pocket after all's said and done, so that's reason enough to sign up well before your 70th birthday.