There are lots of important decisions in life. As you draw close to retirement age, though, one looms especially large: when to file for Social Security benefits.
Many Americans opt to take the money as soon as they can get their hands on it (which is age 62, by the way). I won't be one of them. Here's why I plan to wait until age 70 to claim Social Security -- and you probably should, too.
Image source: Getty Images.
The obvious reason
At the top of my list is the obvious reason for waiting. Social Security benefits increase significantly if you delay filing until age 70.
Three economists -- David Altig, Laurence Kotlikoff, and Victor Yifan Ye -- recently published a paper that found holding off to file for Social Security benefits can boost the average amount a person receives over his or her lifetime by a whopping 76%, adjusted for inflation. This big increase is compared to collecting Social Security benefits at age 62. Altig, Kotlikoff, and Ye estimated that more than 90% of Americans would be better off from a financial standpoint by filing for Social Security benefits at age 70.
I haven't seriously entertained filing for Social Security when I'm 62. Benefits can be reduced by up to 30% compared to filing at the full retirement age. That's way too steep of a penalty for me.
However, I've considered claiming Social Security retirement benefits at my full retirement age of 67. But delaying another three years will increase my monthly benefit by 24%, based on current levels. I think that extra amount justifies the wait.
Live long and prosper
Another factor in my decision is how long I expect to live. I only have to live into my early 80s to break even with a decision to wait three years beyond my full retirement age to collect Social Security benefits.
Genetics could work to my advantage. Most of my grandparents, great-grandparents, and their siblings lived at least until their late 80s. Many of them lived well into their 90s, with a few even passing the centenarian mark. The exceptions were all smokers during their lifetimes. I don't smoke.
For what it's worth, the Social Security Administration's actuarial tables justify the average person waiting until age 70 to file for retirement benefits. The current expected longevity for a male who's age 67 is 16.67 years. For a female of the same age, the expected longevity is 19.1 years.
But I won't be surprised if the average longevity increases in the not-too-distant future. Major healthcare advances will almost certainly be on the way. Technologies including CRISPR gene editing and personalized medicine could play important roles in helping many people live longer and healthier lives. Holding off on collecting Social Security benefits could make your longer life a more prosperous one.
What could change my plan
I'm still years away from filing for Social Security benefits. Could anything change my plan to wait until age 70? Absolutely.
If my health deteriorates, the entire equation changes. I'm obviously hoping that doesn't happen, but I have to acknowledge the possibility that it could.
I'm also counting on being in a strong enough financial position to not need Social Security benefits when I'm 67. That should be the case based on how much I've socked away for retirement already and my plans to continue doing so. However, there's a chance that I might need access to Social Security benefits sooner than I currently anticipate.
Finally, my plans are based on Social Security as it stands today. Should major changes be made to the federal program, it's within the realm of possibility that I might need to reevaluate my timing for filing for benefits.
For now, though, holding off until age 70 to receive Social Security makes sense for me. I suspect that this is the right financial decision for many readers as well.
