Many seniors rely on Social Security to provide a fair chunk of their retirement income. And there's a good chance you'll eventually do the same. As such, it's important to get as much money out of the program as you can.
Now you'll often hear that a guaranteed way to snag a higher monthly benefit is to file for Social Security after full retirement age, or FRA. FRA is when you can collect the monthly benefit you're entitled to based on your earnings history. If you were born in 1960 or later, FRA kicks in at 67.
Of course, many seniors rush to claim their benefits ahead of FRA -- you can do so starting at age 62 -- and shrink those monthly payments in the process. But for each month you delay your filing beyond FRA, your benefit will increase by about 2/3 of 1%. Or, to put it another way, for each year you delay your filing, your benefits will grow by 8%.
The delayed retirement credits you'll accrue by postponing your filing will stop accumulating once you turn 70. As such, 70 is generally considered the latest age to sign up for Social Security, even though you could technically opt to delay your filing beyond that point. And if you're looking at a FRA of 67, filing at 70 means boosting your benefits by a rather impressive 24%.
But while you'll often hear that delaying your filing until age 70 is a surefire way to grow your benefits, that strategy could also come back to bite you. Here's why.
Look at the big picture
Delaying your filing beyond FRA will give you a higher benefit on a monthly basis. But will it give you a higher lifetime benefit? Maybe not.
Filing for Social Security at age 70 makes sense when you expect to live a reasonably long life. But if you don't think that'll happen, whether due to preexisting health issues or your family history, then delaying your filing as long as possible may not be the best way to get more money out of Social Security.
Say you're entitled to a $1,500 monthly benefit at a FRA of 67. Waiting until age 70 to file will give you $1,860 a month instead.
If you live until age 82 1/2, you'll break even -- meaning, you'll end up collecting $279,000 whether you file at FRA or wait until age 70. But if you only live until the age of 78, delaying your filing until age 70 will actually cause you to lose out on over $19,400 in lifetime benefits, even though your monthly benefit will be higher.
It's for this reason that the strategy of delaying Social Security may not be the best one for you. Though it's impossible to predict your own mortality, you will need to face the reality that holding off on filing carries some risk. So if your goal is to get as much money out of Social Security as you possibly can, an earlier filing date may be a better choice.