Did you hear that the average 65-year-old opposite-gendered couple retiring in 2022 is expected to spend $315,000 on healthcare in the course of retirement? That's the number Fidelity put out last year, and once it releases 2023 data, we could see that number grow.
And of course healthcare is just one expense of many that seniors tend to grapple with. Once you're retired, you're going to need to pay for housing, transportation, utilities, and food. You'll also need money to keep busy all week in the absence of having a job.
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That's why it's so important to set yourself up with a nice amount of retirement income. But if you're nearing retirement and largely missed the boat on funding your IRA or 401(k) plan, then your options there may be limited.
You may, however, be excited to learn that there's a step you can take to boost a key source of retirement income by 24% for life. It requires a bit of patience, and it may require you to work a bit longer, but the payoff could be huge.
When you're able to delay your Social Security claim
If you worked and paid into Social Security all your life, then you'll generally be entitled to a monthly benefit in retirement. And if you wait until your full retirement age (FRA) to sign up for Social Security, you'll get the full amount you're entitled to based on your personal earnings history. FRA falls at 67 if you were in 1960 or later.
But Social Security also allows you to grow your benefits by delaying your filing. For each year you hold off on signing up, your benefits get an 8% boost.
Unfortunately, you can't keep accruing delayed retirement credits indefinitely. Those go away at age 70. But what this means is that if you're looking at 67 as your FRA and you sign up for Social Security at age 70 instead, you'll lock in a 24% boost to your monthly benefits that will remain in effect for the entirety of your retirement. That's a massive increase to your income.
Of course, if you're reliant on Social Security to pay your bills in retirement, then you might need to keep working until age 70 if that's when you want your Social Security filing to take place. If you were initially planning to retire at, say, 67, then you might struggle a little during that three-year period knowing you were supposed to be done with work.
But let's say your retirement ends up lasting 20 years. By claiming Social Security at 70, you'll get to enjoy a much higher income for 20 years. When you think about it that way, a three-year sacrifice seems reasonable.
All told, retirement may end up being a more expensive period of life than anticipated. If you're able to lock in a much higher Social Security benefit for life, you can help minimize your financial stress and give yourself more spending power at a time when you might really need it.
