When it comes to claiming Social Security, you have choices. You're entitled to your full monthly benefit based on your personal wage history at full retirement age, or FRA. FRA is either 66, 67, or somewhere in between, depending on the year you were born.
Meanwhile, you're allowed to sign up for a reduced benefit beginning at age 62. You can also delay your Social Security filing beyond FRA. For each year you do, your benefit will increase by 8% on a permanent basis.
Once you turn 70, you won't get any financial reward for delaying Social Security, so you might as well sign up for benefits at that point. Doing so, however, could leave you with a monthly benefit that's 24% to 32% higher than what it would've been had you signed up at FRA.
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Many seniors prefer not to wait until age 70 to file for benefits. But here's a big reason to delay your filing as long as possible.
When your savings let you down
Social Security will replace about 40% of the average earner's pre-retirement paycheck. But most seniors need a lot more income than that to live comfortably -- more like 70% to 80% of their former earnings.
The average senior today gets about $20,000 a year from Social Security. On its own, that's hardly a lot of money. Combined with withdrawals from a retirement plan, however, that $20,000 could make for a comfortable retirement income. But if you don't have much savings to tap, then delaying your Social Security filing until age 70 absolutely makes sense.
There are many seniors that get the bulk of their retirement income from their IRA or 401(k) plan -- not Social Security. But if you didn't manage to accumulate the nest egg you were hoping for, then boosting your monthly benefits substantially is a good way to help make up for that.
In fact, imagine you're entitled to the average monthly benefit of $1,657 at an FRA of 67. If you delay your filing until age 70, you'll lock in a monthly benefit of $2,055 a month instead. That's almost $400 a month extra, or roughly a $4,800 annual income boost. And it can definitely help make up for the fact that your retirement account isn't providing you with the income you hoped it would.
Sometimes, waiting pays off
Many seniors don't want to wait until age 70 to claim Social Security. And some people don't even get that choice.
If you're forced out of a job at an earlier age due to health issues or layoffs, you may not get the luxury to wait on filing for benefits. But if you have the option to hold off until your 70th birthday, then it pays to do so if you didn't end up managing to save a lot of money for retirement. In that situation, delaying your filing could spell the difference between struggling financially as a senior and managing reasonably. And so it's worth being patient to avoid a world of money-related stress.
