Ideally, you'll have multiple income streams at your disposal in retirement. Those could be a combination of savings, investments, and Social Security benefits.
But of your various income streams, Social Security may be the only one that's guaranteed to pay you for life. So it's important to file for benefits strategically.
Image source: Getty Images.
If you claim Social Security at full retirement age, which is 67 for anyone born in 1960 or later, you'll get your monthly benefits in full. File earlier, which you can do starting at 62, and those monthly payments will be reduced.
There's also an option to delay Social Security past full retirement age. Each year you wait, until you turn 70, boosts your monthly benefits by 8%.
I used to think filing for Social Security at 70 made the most sense for this reason. After all, sitting tight guarantees you larger monthly checks for life.
But I've since changed my mind about taking benefits at 70. Here's why.
You're taking a risk by delaying your claim
You'll often hear that filing for Social Security at 62 is risky, since it means slashing your monthly benefits for life. I'm here to tell you that claiming Social Security at 70 is also risky.
While it guarantees larger checks on a monthly basis, it by no means guarantees more lifetime Social Security income. In fact, if you don't end up living a long life, filing for Social Security at 70 instead of doing so earlier could mean shorting yourself on a lot of income all in.
Let's run the numbers so you understand what I mean.
Imagine you're entitled to $2,400 a month in Social Security benefits at full retirement age. If you file at 62 instead, you'll get $1,680 a month. If you delay your claim until age 70, you'll get $2,976.
If you end up living until 85, you'll come out with the most lifetime Social Security in this scenario by filing for benefits at 70. In that case, your total payday will be $535,680.
By contrast:
- Filing at 67 will leave you with a lifetime benefit of $518,400.
- Filing at 62 will give you a lifetime benefit of $463,680.
However, can you really be certain you'll live until your mid-80s? Even if you're in good health at the start of retirement, there's no guarantee things won't take a turn for the worse.
Now, let's do the above calculations but apply a lifespan of age 75. If you pass away then, here's the lifetime Social Security payday you're looking at based on your filing age:
- Age 62-$262,080
- Age 67-$230,400
- Age 70-$178,560
Notice the problem? In this case, filing for benefits at 70 gives you a lot less lifetime Social Security income, despite being eligible for larger monthly checks. For a shorter lifespan, claiming benefits as early as possible gives you the largest lifetime payout.
Consider the big picture
Of course, the problem with having to make a Social Security filing decision is that it's impossible to know how long you'll end up living. You could use your health as an indicator, but having great health at 62 doesn't guarantee that you'll be alive in your 80s.
So what you may need to do is ask yourself whether you're willing to take the chance of shorting yourself on lifetime income to boost your Social Security checks on a monthly basis. You may find that claiming benefits at full retirement age or sooner makes more sense for you.
You should also recognize that getting that money earlier could do good things for your retirement, even if it doesn't result in the largest possible lifetime payday.
Starting benefits at 62 could, for example, make it possible to travel extensively during your 60s. If you live until your mid-80s, it may result in less lifetime Social Security income. But in that case, you'll have the done the things you always dreamed of with that money.
All told, your Social Security filing decision needs to hinge on multiple factors. Your health is one of them, but others include the amount of retirement savings you have, your spending needs, and your personal goals.
The point, however, is that filing for Social Security at 70 isn't automatically your best bet. I used to think it was great advice for retirees across the board, but I no longer feel that way. So I'd encourage you to weigh all of your filing options carefully before landing on a decision.
