It's no surprise that people view claiming Social Security at 70 as a safe financial strategy. You can earn up to $2,969 per month at 62 or up to $5,181 per month if you wait until you turn 70.
That math makes taking Social Security at 70 seem like a no-brainer, but it isn't that simple. There are a few scenarios when claiming at 70 can actually be the wrong move and lead to financial ruin. These are some of the reasons you should think twice before waiting until 70 to access your benefits.
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Some people pass away before turning 70
Receiving $5,181 per month at age 70 is great, but it won't matter for retirees who pass away before then. In that case, it would have made much more sense to claim Social Security as soon as you were eligible.
You have to live long enough after your 70th birthday to justify tapping into your benefits that late. These calculations get more complicated when you realize it was just as possible to claim Social Security upon reaching full retirement age. It's not just 62 or 70. Any age in between is eligible for you to start taking out Social Security.
People with a family history of health issues and shorter lifespans may earn more money if they start receiving Social Security benefits right away rather than waiting until they turn 70.
The bridge strategy doesn't perform well during market downturns
The bridge strategy is a popular approach for people with multimillion-dollar nest eggs. It involves withdrawing from traditional retirement plans before Social Security. That way, their required minimum distributions are lower, and they end up with lower tax bills in their mid-70s.
While the bridge strategy is optimal when the stock market is flat or growing, it can turn into a disaster during market downturns. During corrections, investors who lean into their retirement plans are forced to sell more shares. This process shrinks their portfolios faster and gives them fewer opportunities to benefit from market rebounds.
Claiming Social Security early offers an extra income source that can help you hold on to more of your assets during pullbacks. Having to sell too many assets too early can undo years of saving and investing your wages.
It's harder to travel and enjoy your money when you turn 70
Claiming Social Security isn't just about securing financial independence. It's also a resource that can fill your golden years with more excitement and fun activities.
While you can wait until you turn 70 to take out Social Security, that's the age when many people don't travel as much. If you have some bucket-list destinations, it may be more practical to take out Social Security a little earlier and use those monthly checks to take more vacations.
Some people have elaborate ideas about what their retirement will look like and the different places they will visit. However, you can miss out on a lot of great opportunities and memories if you delay Social Security for too long.
Opportunity cost
Even if you aren't in a rush to travel, you still might lose out if you wait a few years before claiming Social Security. That's because you can take your Social Security checks and reinvest them in the stock market.
While you will miss out on higher Social Security payments in the future, compounded growth from your current benefits can outpace the growth from deferring your benefits.
If you opt to receive $2,969 per month by the time you are 62, you will end up with $285,024 in benefits after eight years. That's not including cost-of-living adjustments. If the portfolio grows by 10% each year, it will be a lot more than $285,024 by the time a 70-year-old decides to claim Social Security.
You can maximize your payouts if you wait until 70, but you can miss out on high investment gains, not have the chance to travel, and possibly not live long enough to get an ROI from delayed benefits.
