Social Security benefits are guaranteed for life, so many people want to get the largest amount of retirement benefits possible. Unfortunately, doing so requires waiting until age 70 to get your first payment. That's because your monthly benefit increases for each month you delay starting it up until your 70th birthday.
While it may seem to make sense on paper to put off filing for benefits in order to increase the amount you bring home, there are actually many reasons an earlier claim might make sense. The single best reason not to wait, though, is if delaying your claim would force you to put off retiring.
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Don't give up some of the best years of your life for a little more Social Security income
Most people have grand plans for what they will do in retirement. You may be dreaming of spending time with your grandkids, traveling the world, or finally having time to enjoy those hobbies like gardening or cooking. Work can interfere with your ability to do all the things you want. And after decades of going to the office each day, you've earned the right to some leisure time as you reach your twilight years.
Unfortunately, if you're like many people, you aren't going to be able to fund that dream retirement -- or any retirement -- without Social Security. While your retirement benefits can't be your only source of financial support, they will likely be a very important one. And if you don't have a ton of savings, you may have to put off retiring until the day you finally claim your Social Security check.
If you put off claiming until the age of 70 and can't retire until you do, you're going to have to work a lot of extra years after you first become eligible for Social Security retirement benefits at 62. These extra years could be some of the last times of your life when you're still in good health and truly able to enjoy the time you free up once you no longer have to report to work every day.
What's the price of your freedom from work?
The reality is, putting off your Social Security benefits claim until 70 does provide a generous increase in the monthly income your retirement checks provide.
See, you have a full retirement age (FRA), which depends on your birth year. Each month you wait after that FRA, you get a benefits increase equal to 2/3 of 1% of your standard benefit amount. This adds up to an 8% annual increase.
If your FRA is 67 (which is the case for anyone born in 1960 or later), you'd be able to increase your Social Security check by 24% if you waited until age 70 to claim it. If the standard benefit you'd have received at 67 was around $1,600, you'd get an extra $384 per month by waiting until 70 -- bringing your total benefit up to $1,984 per month.
But here's what you must ask yourself. Is getting an extra $4,608 per year worth staying an extra three years on the job -- especially once you factor in that you'll also have given up three years of Social Security benefits during that time and will take years to break even for that foregone income?
Or, would you rather reclaim those 36 months, live on a little less, and get to enjoy life sooner? For many people, the right answer is to claim benefits earlier -- especially if your reduced checks will combine with your 401(k) and and other savings to give you enough cash to enjoy those extra three years of retirement to the fullest.
