The most common advice for retirees is to delay taking Social Security as long as possible, up to age 70 if you can. The reasoning is solid: Delaying benefits guarantees a higher monthly benefits check once you do start collecting, and the odds are you'll maximize your lifetime benefits in most cases by delaying until 70.
But waiting to claim your Social Security benefits also comes with some downsides. Here's the unfortunate truth about claiming Social Security at age 70.
Image source: Getty Images.
It's not completely risk-free
While the Social Security Administration guarantees you'll receive a bigger benefit check for every month you delay beyond your age of eligibility, waiting to claim benefits still comes with some meaningful risks. After all, waiting to claim until age 70 means you're not claiming earlier, which means you're foregoing up to eight years of benefit checks.
As mentioned, the odds suggest you'll maximize your lifetime benefits by waiting until 70. Data from the CDC shows the average 62-year-old will live long enough to take home more in lifetime benefits if they delay Social Security, but that's just an average.
A 2019 study from United Income found 57% of retirees would have maximized their wealth in retirement by waiting to claim until age 70. However, that also means 43% of retirees would not have maximized their wealth by waiting that long. That said, just 6.5% of retirees would have more wealth in retirement if they claimed at age 62 or 63, according to the study, so you probably want to wait at least a few years.
Unfortunately, there's no way to know whether you fall in the majority or not. There are reasons you might guess you won't, such as if you have a health condition that lowers your life expectancy. But ultimately, you'll have to take on risk by waiting to claim your benefits.
You may temporarily reduce your spouse's benefits
Your spouse may be able to claim a higher benefit on your earnings record than if they claim on their own record. Social Security spousal benefits allow a spouse to collect up to half the amount their partner will receive at their full retirement age. That could provide a substantial boost to their benefits.
But there's a catch: Both spouses must be actively collecting Social Security benefits.
Importantly, unlike personal retirement benefits, spousal benefits max out at full retirement age. That means that if you're waiting to claim your benefits but your spouse has already reached full retirement age, they may be collecting a much smaller benefit than they could be if you were also collecting benefits.
Coordinating Social Security claiming strategies with your spouse requires some complex calculations. Talking to a financial advisor about your specific situation could be worth the time and money for many.
You might leave less to your heirs
When you delay your Social Security benefits, you'll likely lean more heavily on your retirement accounts to support your retirement spending in your 60s. Additionally, while your Social Security annuity will increase in value while you wait, it has no residual value after you pass. In other words, once you're gone, the value of your Social Security is $0 (with the potential exception of survivor benefits for your widow or widower). Conversely, any money left in your retirement account will go to your beneficiaries.
That may lead some to decide to collect early with the hopes of out-investing the growth in their Social Security benefits. Collecting early will allow you to withdraw less from your retirement accounts before turning 70. That gives your money more time to compound relative to someone who's waiting until age 70 to claim, and it could result in a larger inheritance for your heirs.
This strategy comes with substantially more risk than waiting to claim benefits. Social Security offers a guaranteed inflation-adjusted increase in your monthly benefit by delaying. Collecting earlier and keeping more money invested in the financial markets opens the door for a poor sequence of returns that results in leaving less money to your beneficiaries, or possibly not having enough to afford your retirement in your later years. If you're considering this strategy, be sure to understand the risks involved.
