One of the most important decisions you'll make in retirement planning is when to claim Social Security.
Many retirees wait to claim benefits until reaching their full retirement age, which is when they're entitled to receive their full insurance amount each month. It also comes with a few other benefits, such as the ability to keep working without impacting the size of your monthly check. Anyone born in 1960 or later will have a full retirement age of 67 years old.
But claiming Social Security at age 67 comes with a few downsides retirees need to consider. Here's the unfortunate truth.
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You're taking significant risks
Delaying Social Security may work out better for retirees, on average, but that doesn't mean it's a risk-free decision. You may very well end up with worse-than-average luck.
Forgoing Social Security checks for five years may require you to keep working longer, or it could simply force you to draw down other retirement savings. There's the risk that you could lose your job or become unable to work. There's the risk that the market performs poorly and you deplete more of your savings than anticipated.
There's also the risk that you don't live long enough to overcome the lost half-decade of Social Security checks. You can expect to receive more in lifetime income from Social Security if you delay, but you have to live to about the average life expectancy for someone in their 60s before you break even.
Lastly, there's a risk that the Social Security trust's reserves become depleted during your lifetime, resulting in a cut in benefits. That could extend the amount of time it takes to reach breakeven compared to claiming benefits as soon as possible before any cuts happen.
You're giving up the potential for a bigger benefit
On the other side of the coin, you have an opportunity to continue delaying Social Security until age 70 to collect a bigger monthly benefit. Delaying three years from 67 to 70 will result in a 24% boost to your Social Security check.
It's worth pointing out that the increase in benefits after you reach full retirement age is faster than it is before you reach full retirement age. If you claim at 67, you're foregoing the steepest part of the curve in benefit increases. And the wait is usually worth it.
On average, retirees are best off waiting until 70 to claim benefits. That's the claiming age that provides the greatest expected lifetime payout from the program. A 2019 study from United Income suggests that 57% of seniors should wait until 70 to claim, while just over 10% would be best off claiming at 67.
You could end up leaving your spouse with less
A big part of your claiming decision should also consider your spouse, if you have one. Claiming at age 67 comes with a major downside if you were the high earner in your household. You could end up leaving your spouse with less.
Survivor benefits are a key part of the Social Security program. The benefit ensures a widow or widower can collect up to the same amount in Social Security as the spouse with the highest monthly check. (The benefit is reduced if claimed before they reach full retirement age.) That means if you claim at age 67, you could deny your spouse the potential for a check that's 24% higher for the rest of their lifetime.
This joint survivorship consideration makes the expected value of waiting until age 70 even higher for some retirees. In extreme cases where you earned significantly more than your spouse and you're quite a bit older, you should do everything you can to delay benefits until age 70.
On the other hand, if you expect to receive survivor benefits at some point, it may make more sense to claim your personal retirement benefit well before age 67.
Just because full retirement age is one of the most popular ages to claim Social Security doesn't mean it's the best age for you. Be sure to understand the nuances and trade-offs of claiming at age 67 before you decide that's when you want to claim.
