As you approach retirement, you may end up facing some tough choices. Where should you live? Should you stay in your home or downsize for the savings? And when should you start taking withdrawals from your IRA or 401(k) plan?
Another hard decision you'll need to make in the context of retirement is when to claim Social Security. The earliest age you can sign up to get benefits is 62. And that happens to be a popular age to file.
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Many seniors like the idea of getting their money as soon as possible. But if you don't wait until full retirement age to claim Social Security, your monthly benefits will be reduced on a permanent basis. Full retirement age is 67 for anyone born in 1960 or later.
There's also the option to sign up for Social Security after reaching full retirement age. And you'll be rewarded if you do.
For each year you delay your claim past full retirement age, your benefits get an 8% boost. And that boost is a permanent one.
If you're going to delay your claim, though, it doesn't pay to wait on Social Security past age 70. Even though you're allowed to file for benefits after turning 70, waiting that long could cost you.
Why 70 is generally considered the latest age to claim Social Security
You'll often hear that 70 is the latest age to sign up for Social Security. That's technically not true.
You can sign up for Social Security whenever you want once you reach age 62. Want to file for benefits at 80? Nobody is going to stop you.
However, the delayed retirement credits you accumulate for delaying your Social Security claim past full retirement age stop accruing at age 70, so there's absolutely no financial upside to waiting beyond that point.
If you claim Social Security after turning 70, Social Security may not pay you all of the benefits you could've had sooner. While the program will pay up to six months of retroactive benefits, that only helps if you put in your claim by 70 1/2.
If you file for Social Security at 71, you're basically saying "no thanks" to six months' worth of benefits for no good reason. And the more you delay beyond that point, the more money you risk losing out on.
Be careful even when claiming Social Security at 70
While filing for Social Security after age 70 doesn't make financial sense, filing at 70 is a different story. But even that strategy can backfire on you.
If you don't end up living a very long life, claiming Social Security at 70 could leave you with a smaller total payout compared to signing up earlier. For this reason, you shouldn't assume that age 70 is the best time to start taking benefits, even if you like the idea of larger checks.
You should especially consider claiming Social Security earlier than age 70 if you have health issues that could shorten your lifespan. The same holds true if people in your family tend not to survive past their mid-70s.
Of course, nobody knows exactly what lifespan is in store for them. But it's important to be honest about your family and health history when making a decision on Social Security.
