When it comes to claiming Social Security, you have many choices. The earliest age to take benefits is 62. But if you want those monthly checks without a reduction, you'll need to wait until full retirement age, which is 67 if you were born in 1960 or any year after.
There's also the option to delay Social Security past full retirement age. Each year you wait boosts your benefits by 8%, until you reach age 70.
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Many people assume that the optimal strategy for claiming Social Security is to delay as long as possible for larger checks. That might seem like the best way to get more money out of Social Security. But if you file at 70, you may end up sorely regretting your decision not to claim benefits earlier.
The problem with waiting
It's true that delaying Social Security will lead to larger monthly checks. But waiting won't necessarily lead to a larger lifetime Social Security benefit.
When you file for Social Security early, you reduce your monthly payments. But you also get more monthly payments than you do if you wait. And if you don't end up living such a long life, you can easily come out ahead financially by taking benefits as soon as you can.
Let's say you're eligible for a $2,400 monthly Social Security benefit at age 67. If you file at age 62, those monthly payments will be reduced to $1,680. If you wait until age 70 to file, you'll get $2,976 a month.
Clearly, $2,976 is a much larger payment than $1,680. But if you only live until age 75, you'll only get those bigger payments for five years. And if we do the math, you'll see that you could end up with a lot more lifetime income in this example by claiming benefits at 62.
Here's what the numbers look like if you live until 75:
- $1,680 a month x 12 months x 13 years = $262,080
- $2,976 a month x 12 months x 5 years = $178,560
In this example, despite boosting your individual payments by almost $1,300, you're still getting less lifetime income from Social Security by delaying your claim until 70. You get a lot more lifetime income by filing early.
Don't assume that waiting is best
For some people, it does make sense to delay Social Security until age 70. But don't assume it makes sense for you.
Think about how healthy you are in your early 60s and what your family history looks like. If you have a number of known medical issues and your parents passed away in their mid-70s, claiming Social Security at 62, or at some point ahead of full retirement age, could pay off.
Also consider the amount of savings you have, your retirement income needs, and whether you have a spouse who might outlive you. The more thought you put into your claiming decision, the more likely you are to land on the filing age that's best for you.
