There's a reason older Americans are advised to claim Social Security strategically. Many retirees end up relying on those benefits for the bulk of their retirement income. So it's important to sign up at the right time, since your filing age affects the amount of money Social Security pays you each month.
I, on the other hand, hope Social Security won't constitute most of my retirement income. I've been saving very diligently in a retirement account since my twenties in the hopes of building a substantial nest egg. So I hope to end up in a position where my Social Security benefits serve as bonus money more so than money that's needed to pay for things like housing and food.
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Still, I want to make sure I file for Social Security at the right time. Even if I don't end up needing those benefits to buy groceries or medication, I'd like to get as much money out of the program as possible.
Plus, as much as I've worked hard to build a strong nest egg, there's no guarantee my savings won't run out. Social Security, on the other hand, guarantees retirees their monthly benefits for life. So that's another reason to file carefully, even if, like me, you hope to have a nice amount of income outside of those monthly checks.
I used to be pretty firm on filing for Social Security at age 70. At that age, you're eligible for the maximum amount Social Security will pay you based on your earnings history.
But I've since changed my tune about claiming Social Security at 70. Here's why, and what I'm now thinking instead.
Claiming Social Security at 70 doesn't always work out
If you're not super familiar with your Social Security filing options, here's a rundown:
- The earliest age to claim Social Security is 62.
- Filing for Social Security ahead of full retirement age results in reduced monthly checks for life.
- Full retirement age is 67 for anyone born in 1960 or later.
- Each year you delay your claim past full retirement age boosts your benefits by 8%, up until age 70.
I used to think that filing for Social Security at 70 made sense for me because it would result in the largest monthly checks. But I've since realized that filing at 70 won't necessarily result in the biggest lifetime payday.
Now you'll often hear that if you're in good health going into retirement, it pays to delay Social Security until 70. The logic is that you're likely to live long enough to make a delayed claim pay off in the form of not just more monthly income, but also, lifetime income.
Last year, though, I learned the hard way that great health does not guarantee a long life.
In March, my father-in-law -- the seeming picture of perfect health -- passed away at 78. This is the same person who took up running in his 30s and had since completed over 190 marathons (no, that's not a typo).
At the time of his passing, my father-in-law had slowed down and wasn't running ultra-long races. But he was still running and working as a cardiologist, seeing patients multiple days a week at his practice.
Aside from the personal loss, my father-in-law's passing made me realize that no one is guaranteed longevity. You could be in perfect health at age 62, when Social Security is first on the table, only to see your health decline rapidly in the years that follow.
That's why I'm no longer a fan of delaying Social Security as long as possible -- at least not in my situation. While I like the idea of larger monthly checks for life, who knows what "for life" means for anyone? And if you don't end up living a long life, you could seriously short yourself on total Social Security income.
Running the numbers
I want to be clear that my change of heart on Social Security isn't just an emotional matter. When you run the numbers, you can see the clear risk of claiming Social Security at 70.
Let's say you're eligible for $2,000 a month in Social Security at your full retirement age of 67. If you sign up at 70, you'll get $2,480 a month instead.
If you live until age 82 and 1/2, you'll end up with a total of $372,000 in Social Security income whether you file at 67 or 70. But if you only live until age 78 like my father-in-law did, you'll end up with $264,000 in total if you file at 67, and only about $238,000 in total if you file at 70.
Meanwhile, in this same example, filing for Social Security at 62 means reducing your monthly payments to $1,400 apiece. But passing away at 78 gives you a total of about $269,000 in Social Security, which is about $5,000 more than what you'd get by filing at 67 and around $30,000 more than what you'd get by filing at 70 in this example.
For this reason, as of now, I'm now leaning toward claiming Social Security at 62. I know that doing so will reduce my benefits on a monthly basis. But I also feel that this buys me some protection in the context of lifetime income.
Of course, as I stated earlier, I'm someone who hopes to use Social Security as extra income. If you're nearing retirement without much savings, this logic may not work for you the same way.
I don't know, for example, that I'd suggest claiming Social Security at 62 for someone approaching retirement with a $250,000 IRA. For someone with a $2.5 million IRA, it may not be a bad idea.
Ultimately, your Social Security filing age is a personal choice, and I'd encourage you to consider a variety of factors when making it. But losing someone unexpectedly at a relatively young age made me realize that delaying Social Security until 70 isn't necessarily the wise financial decision I once through it was. And that's why I'm now embracing a different plan.
