Many seniors appreciate the fact that they can choose when to sign up for Social Security. The earliest age to do this is age 62, and you can't collect your full monthly benefit based on your earnings history until full retirement age (FRA) arrives.
FRA is 67 for anyone born in 1960 or later. And for each month you claim Social Security before FRA, your monthly benefit gets reduced.
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You also get the option to delay Social Security beyond FRA. For each year you hold off up until age 70, your monthly benefit gets an 8% boost. And to be clear, that boost is permanent.
You may be inclined to delay Social Security so you can lock in a higher monthly benefit for life. That way, if you end up depleting your 401(k) or IRA sooner than expected, you'll have a higher benefit to compensate.
But while delaying Social Security could work out well for you financially, it could also backfire in one specific scenario. And that's something you'll want to be mindful of.
When you don't live a very long life
It's natural to go into retirement hoping and expecting to live for several more decades. But the unfortunate reality is that you're not guaranteed to live into your 80s or 90s.
Even if your health is great as retirement nears, you might run into issues in your 70s that cause you to pass away. And in that scenario, a delayed Social Security claim could cause you to lose out financially.
See, holding off on Social Security will result in a series of higher monthly benefits. But if you don't live a long life, it might result in a lower lifetime benefit.
As an example, let's say you're in line for a $2,000 monthly Social Security benefit at your FRA of 67. Waiting until age 70 will give you $2,480 a month instead.
If you live until age 90, you'll come out $43,200 ahead in your lifetime by virtue of delaying your filing until age 70. But if you only live until age 75, that decision will cost you $43,200 in Social Security benefits. So all told, delaying your filing means taking a gamble.
What's the right call?
If your health is poor going into retirement, then filing for Social Security on time or even early is something to strongly consider. It's when your health is in good shape that the decision becomes tougher only because you never know when things might take a turn for the worse.
At that point, the best you can really do is go with your gut. And also, think about how badly you might end up needing a higher monthly benefit.
If you don't have a lot of savings, then a delayed Social Security filing could make sense. But if your nest egg is fairly robust, then you may be better off claiming benefits at FRA just in case your health takes an unexpected turn for the worse. That way, you can start getting your money sooner, thereby lowering the chances of shorting yourself on lifetime Social Security income.
