No matter how diligently you try to save for retirement, you may end up pretty reliant on Social Security to cover your senior living expenses. If so, you won't be alone. But if that's the case, you may be eager to do everything in your power to get more money out of the program.
In a recent MassMutual survey of Americans ages 40 and older, 21% of pre-retirees cited plans to delay Social Security. And 18% of current retirees say they went that route already.
Delaying your Social Security claim could very well result in a boosted monthly benefit for life. But whether that move makes sense depends on your personal circumstances.
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A strategy that could work -- or sorely backfire
You're entitled to your complete monthly Social Security benefit based on your individual wage history once full retirement age (FRA) arrives. That age is 66, 67, or somewhere in between, depending on your year of birth.
For each month you delay Social Security past FRA, up until age 70, your benefit will get a small boost. Delay your claim for a year past FRA, and your monthly benefit will grow by 8%. All told, you can permanently boost your monthly payments by 24% to 32% by filing for Social Security at age 70, depending on your FRA.
At first, that move might seem like a no-brainer since it's a guaranteed higher benefit for life. But while delaying Social Security may result in a higher monthly benefit, it won't necessarily result in a higher lifetime benefit.
If your health is poor and you don't live a long life, signing up for Social Security at age 70 could be a costly mistake. In that case, you may deny yourself lifetime income from the program, despite a higher monthly benefit.
Let's say you're eligible for a benefit of $1,800 at an FRA of 67. If you file for Social Security at age 70, you'll get $2,232 a month, instead.
But you'll need to live until age 82 1/2 to make up for those 36 months of missing Social Security income to break even. If you only live until age 80, a Social Security claim at age 70 would cost you about $13,000 of lifetime income in this example.
Know your break-even point
In some cases, delaying Social Security makes sense, such as if you have a family history of longevity or excellent health going into retirement. But otherwise, know the risks of putting off your Social Security claim. And before you land on a decision either way, calculate your break-even point -- the age at which you'll end up with the same amount of lifetime income in different filing scenarios.
If that age is higher than you had expected, it may prompt you not to hold off on Social Security for too long. And if you don't have a lot of confidence in your longevity, claiming benefits before age 70 could be a smart financial move for you.
