In theory, it's a good thing that Social Security lets older Americans choose when to sign up for benefits. Though your benefits are based largely on your earnings history, your filing age also determines how much money you receive each month.
But deciding on the right Social Security filing age is tough. It's easy to give in to the temptation to claim benefits at 62. But doing so will mean reducing those benefits on a lifelong basis.
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Waiting until full retirement age (which is 67 for people born in 1960 or later) means you'll get your monthly benefits without a reduction or boost. But if you want to grow your benefit payments on a monthly basis, you'll need to delay your claim beyond that point.
Social Security will give your monthly benefits an 8% increase for each year you hold off on filing past full retirement age, up to age 70. For this reason, I used to think claiming benefits at 70 was the smartest move possible. After all, filing at 70 means guaranteeing yourself larger monthly benefits for life.
But I've since changed my tune on claiming Social Security at 70. And I'm no longer convinced that waiting that long is such a great idea.
You're not guaranteed to come away with more money
The reason I used to like the idea of claiming Social Security at 70 was simple: You'd get the largest possible monthly paycheck based on your earnings history. And locking in larger benefits could give you peace of mind throughout retirement.
A lot of people worry about depleting their savings during their lifetime. And it almost doesn't matter how much money you have. You could kick off retirement with $800,000 or $3 million, and you might still have that nagging thought in the back of your brain.
The more Social Security you get each month, the less reliant on your savings you'll be. And even if you do run out of savings, you'll have larger monthly checks to fall back on.
The problem, though, is that while filing for Social Security at 70 guarantees you larger monthly benefits, it doesn't mean you'll walk away with more lifetime income from the program. For that to happen, you need to live long enough to make up for years of not getting benefits sooner. And no one's lifespan is guaranteed.
Now, I used to think that if you were entering retirement in great health, that was a good reason to delay Social Security until age 70. But solid health in your 60s, unfortunately, doesn't guarantee things will stay that way in your 70s.
If you decide to claim Social Security at 70, knowing your body is in good shape, you could get diagnosed with an illness at 71 and pass away at 72. In a scenario like that, you're looking at losing money by waiting until age 70 to sign up for benefits.
Think about what you'll be giving up
Another issue with claiming Social Security at age 70? Even if it does result in more lifetime income for you, it could mean missing out on the opportunity to take advantage of your good health.
Say you're in great shape in your 60s but push yourself to keep working so you can sign up for Social Security at 70. You might then live until your late 80s and collect more money from Social Security in your lifetime than you would've had you signed up earlier.
But what if, come age 70, your body starts to fail you? What if your arthritis comes to a head and your joints can't handle the extensive travel you hoped to do in retirement? In this scenario, waiting to claim Social Security at 70 could mean missing out on experiences you've saved for and deserved to have.
Think through your decision carefully.
I'm not going to say that claiming Social Security at 70 is a terrible idea because for some people it isn't. My point, rather, is that while I used to think 70 was an optimal age to sign up for Social Security, I'm no longer convinced that waiting as long as possible makes sense on a broad level.
In the course of making your decision, think about what your benefits could do for you sooner rather than later. Also, think about how much you've saved and how dependent on Social Security you expect to be as a retiree. With any luck, you'll arrive at a filing age that's right for you.
