If you're deciding when to claim Social Security benefits, it pays to be strategic about your choice. And, for many people, the best approach is to maximize the monthly benefits you end up with -- which means waiting until the age of 70 to claim your first check.
There are three important -- and perhaps unexpected -- reasons why it's often a good move to put off your benefits claim to supersize the size of your monthly payment. Here's what they are.
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1. Benefits will last for life
Social Security benefits may be your only source of guaranteed lifetime income.
Your savings could run out if your investments don't perform as well as expected, if you withdraw too much too fast, or if you underestimate how long your savings will need to last (due to early retirement or a longer-than-expected life span). And while defined benefit pensions are typically guaranteed for life, many people do not have access to them through their employer anymore.
Since there's pretty much no risk of your Social Security running out, it's worth trying to get the biggest checks possible. If your savings start to run dry later in life, you'll be grateful for the extra money coming from the Social Security Administration.
2. Your checks are protected against inflation
A second great reason to max out your Social Security checks is because they have built-in protections against inflation that other retirement income sources don't usually have.
If you have money in savings or invested, there's no guarantee the interest you earn or the ROI on your investments will even keep pace with rising prices. Social Security, however, comes with periodic cost-of-living adjustments (COLAs) to help ensure it does just that.
COLAs are based on changes to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). If CPI-W shows prices rose year over year, retirees get a benefits increase equal to the rising costs of goods and services. While this formula isn't perfect, it means Social Security benefits typically don't lose as much buying power as other sources of retirement money.
If inflation eats away at the value of your other sources of retirement income, you'll really appreciate the fact you've maxed out the monthly Social Security benefits you get.
3. Your benefits could help support your surviving spouse after you're gone
Finally, maxing out your Social Security benefits can help ensure you don't leave your spouse in the lurch. That's because your spouse could get larger survivor benefits if you were the higher earner and you've waited to claim your retirement income.
See, when one spouse dies, the remaining spouse gets to keep the larger of the Social Security benefits coming into the household. If you waited until age 70 to increase your retirement checks as much as possible, your benefit may be much larger than the Social Security income your spouse is receiving -- especially if you made more than your spouse over your career.
If you pass away first and your spouse gets to keep this supersized benefit that came from your efforts to max out your monthly payments, they're less likely to experience hardship as a widow(er).
For all of these reasons, you should seriously think about waiting until 70 to claim Social Security. When you have a bigger check to help you cope with rising prices, dwindling savings, or widowhood, you'll be grateful you did.
