When it comes to filing for Social Security, you have different choices. You could sign up for benefits at your full retirement age (FRA) and get the complete monthly benefit you're entitled to based on your wage history. FRA is 67 for anyone born in 1960 or later. Otherwise, it's either 66, or 66 and a certain number of months.
You're also allowed to sign up for Social Security starting at age 62 for a reduced benefit. In fact, your benefit will be lowered for each month you claim Social Security prior to FRA.
On the flip side, you can delay your Social Security claim past FRA and grow your monthly benefit in the process. This incentive remains in place until the age of 70, which is generally considered the latest age to sign up, even though you're not required to do so at that time.
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If your FRA is 67 and you delay your Social Security filing until age 70, your monthly benefit will get a 24% boost (8% per year you delay) for life. And so you may be inclined to hold off on filing to get more money out of Social Security.
After all, you could take your benefits sooner and invest them. But that carries risk you may not want to deal with.
That said, these days, savings accounts are paying a lot more money than they were a year ago. And so it begs the question: Does delaying Social Security still make sense now that savings account rates are higher? Or should you take your money sooner and stick it in the bank?
A delayed filing could still make sense
Some people can't afford to hold off on claiming Social Security. But if you're in a position where you can wait on filing for benefits, it still pays to do so -- despite the opportunity to earn more interest on those benefits by putting them into the bank.
These days, you might snag a 4% APY, or even a bit higher, in a high-yield savings account. That's a nice risk-free return. But it still pales in comparison to the 8% boost per year you can give your benefits by delaying Social Security past FRA. So if you don't need your benefits immediately -- say, because you're still working, or you have other income sources at your disposal -- it still makes sense to hold off on claiming them, despite today's higher savings account rates.
Furthermore, the savings account rates we're seeing today aren't set in stone. It's possible that in a year from now, even the most generous high-yield savings accounts will be paying a lot less.
On the other hand, if you delay your Social Security filing, you'll be guaranteed that 8% boost per year you hold off. That 8% boost isn't tied to inflation or a fluctuating economic measure, so it's set in stone.
Delaying Social Security certainly isn't the right move for everyone. But you shouldn't reverse course on your plans to postpone your filing due to today's interest rate environment. You're better off delaying your claim and setting yourself up with a more generous monthly benefit for what could be many decades.
