A lot of digital ink has been spilled in the quest to figure out the absolute best age to start taking Social Security. Despite all the worry driving those discussions, there are only a few key factors that really drive a meaningful difference for most people:
- If your health or financial situation leaves you with no real choice, it makes sense to claim early.
- If you're still working, it makes sense to wait until at least your full retirement age to claim.
- Once you reach age 70, you should claim even if you're still working and don't need the benefit.
On average for people where those factors don't apply, the trade-offs involved generally balance each other out to where it doesn't really make all that much difference when you start collecting.
All that said, there is a clear age that makes the most sense to plan on collecting your Social Security. That age is 70, the age at which your benefit stops increasing based on you waiting to claim. Here are three key reasons this is the case.
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No. 1: It helps you separate "retirement" from "claiming Social Security"
If the first thing you thought when you saw age 70 as the best age was "I don't want to work that long," then you've stumbled upon a key reason it's so important to plan to collect at age 70. By recognizing the additional years involved, it almost forces you to think about how to get there without having to work all the way to your 70th birthday.
The key strategy to make it work is to invest. Target to add enough to your nest egg to completely cover your costs for those eight years between when you turn 62 and when you turn 70. If you do so, you can retire at that earlier age while still getting the larger Social Security benefit from delaying.
If you get close -- but not quite -- there, you can still potentially gain several years' worth of boosts to your Social Security benefit versus what you would have received by claiming at 62. As an alternative, having a decent nest egg might give you the opportunity to "semi-retire" early to a lower-stress, lower-paying job that you enjoy. That could keep you more engaged and both willing and able to work longer, helping you reach age 70 before claiming your benefits.
No. 2: It improves your inflation-adjusted income
Social Security offers an annual cost of living adjustment based on recent inflation rates. Everyone gets the same percentage increase, but the dollar amount of your increase depends on what your existing benefit looks like.
For a scope of how big the difference could be, let's say you would reach full retirement age at 67 and that your full retirement age benefit would be $2,000 per month. By waiting until age 70, your benefit would be $2,480 per month. If, on the other hand, you collect early at age 62, your benefit would instead be $1,400 per month. If the inflation adjustment is 5%, then your personal monthly adjustment could be as large as $124 or as low as $70, depending entirely on when you claim.
And, of course, that gap simply keeps getting bigger in dollar terms every time there's another inflation adjustment. Especially if you're a retiree living on a fixed income, it sure helps to have a larger base that is able to get that inflation adjustment.
No. 3: Consider your spouse and the impact once one of you dies
As a general rule, a surviving spouse who has reached full retirement age will receive the higher of the couple's two individual Social Security benefits once the first member of the couple dies. If both members of the couple had started Social Security, that probably results in an income cut for the survivor. In addition, for a given amount of income, tax rates are higher for single people (like widows and widowers) than married people who file joint returns.
That combination can lead to a situation where the surviving spouse has both lower income and faces higher taxes than when both members of the couple were alive. In addition, if the spouse who dies sooner was the person who managed the household finances, the survivor is faced with the burden of taking on those new money responsibilities as well.
Add it all together, and the death of a spouse can be a major financial disruption, on top of the already difficult lifestyle and companionship one. By having the higher-earning spouse delay Social Security until age 70, it maximizes the potential value of the survivor's benefits, which minimizes the financial aspect of those already difficult life changes.
Get started now
When all is said and done, getting yourself in the position where you can comfortably choose to wait until age 70 to claim your Social Security benefit is really the most important part. Once you're there, you will have that much better financial flexibility no matter when you actually do claim.
Of course, if you haven't already started benefits, you'll never again have more time before you do than you do right now. It takes time to get enough of a nest egg in place to give yourself the flexibility that comes with being able to wait until age 70 to claim, so get started on your path now. The sooner you do, the better your chances are of reaching your goal.
