Most financial experts will tell you the best age to claim Social Security is age 70. However, applying blanket advice to your personal situation can be detrimental to your finances. That's especially true when it's a decision as important as when to claim your retirement benefits.
Statistically speaking, the majority of retirees will maximize their lifetime benefits from Social Security by waiting until age 70 to make their claim. In many instances, though, waiting that long is far from optimal from both a financial standpoint and the standpoint of enjoying your retirement years.
Here's the unfortunate truth about claiming Social Security at age 70.
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You may be foregoing benefits for no reason
Most retirees become eligible for Social Security starting at age 62, but each month you wait to claim, you can get a bump in your monthly benefit. However, those monthly benefit increases stop once you celebrate your 70th birthday.
As such, many individuals will receive their biggest possible monthly benefit by waiting until age 70, but some individuals could get a bigger benefit even earlier. If those individuals wait until age 70 to claim, they've just lost years of payments.
If you qualify for spousal benefits, determine how much you can receive from Social Security by claiming benefits based on your spouse's earnings record. You can receive up to half of what your spouse qualifies for at their full retirement age (between ages 66 and 67). Unlike personal retirement benefits, though, your spousal benefits won't continue increasing each month once you reach full retirement age.
For many, spousal benefits are worth nearly as much or more than their personal benefit, even if they delay all the way until age 70. It may therefore often be a better deal to claim a slightly smaller benefit when you reach full retirement age than waiting to claim your personal benefit at age 70. You'll get at least three extra years of benefits.
Even if your spousal benefit isn't more than your personal benefit, you might consider taking your benefits earlier than 70 if you were the low-earning spouse. That's because you'll be eligible to collect survivor benefits if your spouse passes away before you, which will bump your personal benefit up to the amount they were collecting prior to passing. Many couples can maximize their expected lifetime income from Social Security if the lower-earning spouse claims benefits as soon as possible and the high-earning spouse waits until age 70.
There's still a risk to waiting until age 70 for high earners
Even if all the actuarial tables say you'll maximize your expected income from Social Security by waiting until age 70, that doesn't mean there's no risk. Social Security was designed to pay similar amounts in total lifetime benefits, regardless of the age at which you claim. While extended life expectancies have pushed the odds in favor of waiting until age 70 if you want to make the most of Social Security, there's still significant risk you won't live long enough to wait for it to pay off.
That risk is higher if you suffer from medical conditions that could shorten your life. What's more, claiming Social Security may be the best way to help you pay for any treatments that could help you live a more enjoyable life. Therefore, you could be doing yourself a double disservice by sticking to the idea you must wait until age 70 to get the most out of Social Security.
It's important to remember that your claiming decision doesn't need to be optimal from a mathematical perspective. If Social Security can help you enjoy your 60s more (when you're still young and active), it might make sense to claim your benefits earlier when you can enjoy the extra cash. Just be sure your decision won't put you in an unmanageable financial position in your 70s and beyond.
Medicare costs can be a burden
One notable expense to plan for in retirement is health insurance. If you're enrolled in Social Security, you'll automatically become enrolled in Medicare starting at age 65. Your Part B premiums will come out of your Social Security payments before they ever reach you. That can be a great way to get medical coverage in retirement without feeling the pain of paying for insurance.
If you're not enrolled in Social Security already, you'll have to register in Medicare and pay your premiums out of pocket. This year's Part B premiums start at $185 per month and rise if you have high levels of income.
Next year, retirees will pay even more, with estimated premiums of $206.50 per month. That's a huge 11.6% increase in cost.
For retirees currently enrolled in Medicare and Social Security, they could benefit from the hold harmless principle. That ensures that their Medicare premium increase won't cause a reduction in the amount they receive from Social Security each month.
That's an important factor for retirees with relatively small monthly retirement checks. If you're in line for a smaller-than-average benefit, it might make sense to claim benefits the year you turn 65 (or earlier) to protect your Social Security from rising medical expenses.
