A delayed Social Security claim can have a big payoff.
You can start getting retirement checks at 62. But if you put off your claim until at least full retirement age, you avoid getting hit with up to a 30% reduction in your standard benefit that comes from monthly early filing penalties. And if you wait beyond FRA until 70, you earn monthly delayed benefits that add up to an annual 8% benefit increase.
While waiting until 70 to maximize monthly benefits makes sense for a lot of people, it's not the right choice for everyone. In fact, there are three situations when putting off filing for Social Security could really backfire. Here's what they are.
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1. If you drain your savings account
Many people can't wait until 70 to retire, so they end up having to rely solely on their retirement investment accounts for support if they don't claim Social Security. The problem is, if you take too much money out of your accounts, you won't leave enough invested and your balance will fall too fast.
While it may seem like a smart idea to spend your savings in order to put off claiming Social Security so you can get bigger checks later, this is actually a terrible plan. Your retirement benefits are only designed to replace 40% of pre-retirement income and you can't live on them alone -- even if you do get the maximum benefit by waiting until 70.
If there's any chance a delayed Social Security claim will cause you to drain your savings dry, do not put off filing for benefits. Start your retirement checks coming so you can maintain a safe withdrawal rate (usually around 4% of your balance or less) and continue to have multiple income sources throughout your retirement.
2. If you die before you start getting benefits or break even for missed benefits
When you wait to claim Social Security, you gamble on the fact that you'll be around to get big checks later. In fact, since you're missing out on years of Social Security checks if you put off your benefits claim, you're gambling on living long enough to make up for all that forgone income with the higher payments you'll eventually receive.
The sad reality is, there's a real chance you may not live long enough to get many checks if you wait until 70 to claim them. In fact, you could die before you get a single payment.
Now, if you were the higher earner and you put off starting retirement benefits, this could help out your spouse since you would raise the survivor benefits they receive. But, if that doesn't apply to you, a delayed claim could backfire big time if you pass away before you break even for missed benefits.
3. If your delay causes a higher-earning spouse to claim sooner
Finally, there's another situation when you might regret filing for Social Security. If you put off your Social Security check and your spouse starts theirs to bring in income for your household, this could be a huge mistake if your spouse made more than you did.
See, benefits are based on average earnings. So, if your spouse made more over their career, they'd have a bigger benefit. That means they'd get a bigger payoff for delaying their benefits since the increase earned by delaying is calculated based on a percentage of the standard benefit.
If you and your spouse are trying to decide who should claim benefits first, it almost always makes sense for the lower earner to start retirement checks and the person who made more to wait. This can maximize combined Social Security coming into the household once the higher earner's bigger benefit is claimed -- and it can result in larger survivor benefits too.
So, before you assume a delayed claim is always the right choice, be aware that there are circumstances where it could backfire. If you think any of these could apply to you, filing for benefits ASAP may be your best option.
