The monthly Social Security benefit you're eligible to collect in retirement will be based on your personal earnings history. But from there, the age at which you file will dictate how much money you'll get.
If you file at your precise full retirement age, or FRA (which is either 66, 67, or 66 and a certain number of months, depending on your year of birth), you'll collect the full benefit your wage history entitles you to. But if you delay your filing beyond FRA, your benefits will increase by 8% a year, up until you turn 70.
If you're entering retirement without a lot of money in a savings plan and you expect Social Security to be your main source of income, then delaying your filing could really pay off. That way, you'll guarantee yourself a higher benefit for life.
But while you might think that delaying your filing is a smart idea, whether you're able to do so is a different question. Last year, the Employee Benefit Research Institute found that 48% of Americans are forced to retire sooner than planned. So delaying Social Security may not be in the cards for you, due to the following reasons.
1. You could get downsized out of a job
The pandemic taught a lot of people the hard way that a seemingly stable job has the potential to disappear overnight. Of course, the pandemic represents an extreme situation, but the point is that you never know when your job might get yanked out from under you.
In fact, one big problem some older workers encounter is being forced out of a job due to agism. Discriminating against employees on the basis of age alone is illegal -- but that doesn't mean some companies don't get away with it.
Another thing to keep in mind is that if you're let go at work for legitimate reasons in your late 50s or early 60s, you might struggle to get another job due to your age. As such, losing your job could make it difficult or impossible for you to delay your Social Security filing if you need an income in the absence of having access to your benefits.
2. Health issues could force you to end your career
Some people are forced to retire early due to health issues. This especially holds true if you work a physical job -- one that has you out and about that you can't do remotely.
Even if you don't encounter health issues of your own later on in your career, you might land in a situation where you have to become a caregiver, due to a family member's health issue. And at that point, if you can't keep working full-time, you may not have the option to delay Social Security, as you might need that money to cover your expenses.
There's nothing wrong with planning to delay Social Security to score a higher benefit in the process. But you also shouldn't bank on being able to do that.
Instead, have a backup plan. Sock away as much money as you can in a dedicated savings plan so that if you wind up having to claim benefits sooner than you'd like, you'll still have a decent stream of retirement income at your disposal.