If there's one thing retirees as a whole tend to fear, it's running out of money.
And it doesn't matter if you're kicking off your senior years with $1 million saved or $4 million. At the end of the day, if you don't manage your savings wisely, you risk seeing your nest egg get depleted in your lifetime.
Image source: Getty Images.
That's part of the reason why Social Security is such an important income source for seniors. Of course, for retirees without savings, those monthly benefits are crucial. But even for those with decent savings, one advantage Social Security has is that those monthly benefits are guaranteed for life and can't run out the same way an IRA or 401(k) might.
That's why it's so important to claim Social Security at the right age -- even if you're coming into retirement with a pretty giant pile of savings. And for a long time, I was convinced that claiming Social Security at age 70 was the safest move.
But I've since changed my tune. Here's why I now think taking benefits at 70 is risky.
You don't want to short yourself on lifetime income
If you earned enough money to qualify for Social Security in retirement, you can claim benefits at any point once you turn 62. If you wait until full retirement age, which is 67 if you were born in 1960 or later, you'll get your monthly benefits without a reduction. For each month you file before that point, your benefits lose some value.
If you delay Social Security past full retirement age, your benefits will increase 8% for each year you wait, up until you turn 70. You can technically claim Social Security after your 70th birthday. But since there's no reason to, 70 is generally considered the "latest" age to sign up.
I used to think it made sense to file for Social Security at 70 and lock in the highest monthly payments possible. After all, that gives you the largest amount of guaranteed monthly income.
What it doesn't give you, though, is the greatest amount of guaranteed lifetime income. And realizing that is what made me change my mind about 70 being the safest age to sign up.
The numbers don't lie
See, filing for Social Security at age 70 could work out just fine for people who live well into their 80s or beyond. For people who don't, taking benefits at 70 doesn't always work out so well.
Imagine Bob's eligible for $2,500 a month in Social Security at his full retirement age of 67. Filing at 62 will knock his benefits down to $1,750 per month, while waiting until 70 to file will give him $3,100 per month.
If Bob lives until age 87, he comes away with $632,400 in lifetime Social Security benefits by waiting until 70 to file. By contrast, he only gets $600,000 in lifetime benefits if he files at 67 and $525,000 in lifetime benefits if he files at 62.
If Bob only lives until 77, the numbers look different. In that case, he only gets $260,400 in lifetime Social Security income if he files at 70. If he claims benefits at 67, he gets a total of $300,000. If he signs up for benefits at 62, he gets a lifetime payday of $315,000.
Now clearly, nobody can predict their own life expectancy. But if you don't want to take the risk of shorting yourself on lifetime Social Security income, you may want to sign up as early as possible. That way, if you don't live as long as you hope, you might secure a larger lifetime paycheck.
Look at the big picture
Of course, there are different variables to consider when deciding when to claim Social Security. These include:
- Whether you're able to keep working once you're eligible for benefits
- How much savings you have
- Whether you have a spouse who's likely to outlive you
The point, however, is that filing for Social Security at age 70 is not necessarily the safest bet if your goal is to maximize lifetime income. And you shouldn't write off the idea of filing early if you're hoping to get as much Social Security as possible.
It can be scary to think about reducing what could be your one guaranteed source of monthly retirement income. But you may find that slashing your benefits on a monthly basis with an early claim ultimately puts the most amount of money in your pocket.
