There's a reason why older Americans are often encouraged to delay their Social Security claims. For each you hold off past full retirement age, which is 67 for folks born in 1960 or later, your monthly benefits get to grow 8%.
Now that incentive runs out at age 70, so 70 is typically regarded as the latest age to claim Social Security. But if you wait that long, you'll set yourself up with larger monthly benefits for the rest of your life.
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That's a great way to make up for a smaller retirement plan balance. It's also a great way to secure more buying power in the face of inflation.
But while claiming Social Security at 70 may be a good strategy for some people, there's a less obvious drawback to doing so. And it's a key point to consider before deciding to delay your claim beyond full retirement age.
What does your health have in store?
If you're considering delaying Social Security, it's important to do a break-even analysis to see how long you have to live to come away with more lifetime benefits by filing at age 70 as opposed to signing up sooner.
Remember, the risk of filing at 70 is collecting fewer individual payments. If you don't end up living very long past age 70, you may lose out on lifetime Social Security income, despite getting larger checks each month.
But that's not the only risk of taking benefits at 70. The other risk is that you don't know what your health will look like at that time. And if you end up in poor health, or with issues that slow you down or limit the activities you're able to do, those monthly benefits may not go as far for you.
This doesn't mean they'll be worth less money. It just means they may not help you meet your retirement goals like they potentially could have years earlier.
Let's imagine you've saved enough in your IRA or 401(k) to cover your basic retirement expenses -- things like housing, healthcare, and food. In that scenario, you may be counting on Social Security to pay for the trips you've always wanted to take.
If, come age 70, your health has declined, you might get larger checks from Social Security if you sign up at that point. But you may also find yourself unable to take the trips you've always wanted to because your body can't handle them.
Of course, at that point, you could always pivot and find other ways to make the most of your larger benefits. You could put the money toward home improvements or hobbies you can still enjoy.
The point, however, is that while waiting until age 70 might give you more money each month from Social Security, it may not give you more enjoyment out of Social Security. That's something to keep in mind when you contemplate when to sign up.
Your emotional happiness matters, too
When people think about signing up for Social Security, they're often encouraged to file at a time that optimizes their financial wellbeing. But don't forget that you're a person who worked hard your entire life and therefore deserves to prioritize your emotional wellbeing, too.
If claiming Social Security at full retirement age, or even earlier, helps ensure that your benefits are able to help you achieve your lifelong goals, then it may be worth accepting smaller monthly checks for life. So before committing to taking benefits at age 70, ask yourself if you're willing to take the risk of having your health be less optimal at that point, thereby rendering those benefits less meaningful.
