Image: Social Security Administration.
Making the most of Social Security is vitally important for the tens of millions of Americans who currently receive benefits and hundreds of millions more who expect to take Social Security in the future. Most recipients take their Social Security benefits as soon as they're allowed at age 62, choosing to accept lower monthly payments to get them earlier. But for those who can afford to consider waiting before taking Social Security, there are some great reasons to plan to take benefits at age 70. Let's look at three of them.
1. Maximize both your monthly benefits and those of your surviving spouse.
The most obvious reason to take Social Security benefits at age 70 is that doing so maximizes your monthly check. After full retirement age, you can get delayed retirement credits that add up to 32% to what you'd ordinarily be entitled to receive, and that can amount to a check that's 75% higher than what you'd get at age 62. Delayed retirement credits end at 70, so there's no reason to wait beyond that point.
Many argue that life expectancies make it unlikely that you'll get enough by waiting until age 70 to make up for the fact that you gave up as much as eight years' worth of payments. Yet for married couples, one element that pushes the equation in favor of waiting is that your spouse's survivor benefits are based on your retirement benefits. If you wait, those survivor benefits will also rise. Over your joint life expectancies, a decision for one of you to wait until age 70 before claiming can be the best way to get the most money from Social Security.
2. Avoid the hassle of forfeiting Social Security benefits.
Many people who claim Social Security at age 62 do so while they're still working. That allows them to supplement their work income, but it also opens the door to having their Social Security benefits taken away from them. Under current guidelines, those who will be younger than full retirement age throughout 2016 risk losing $1 of their annual Social Security benefits for every $2 they earn over the current threshold earnings amount, which for this year is $15,720. Those who reach full retirement age during 2016 could lose $1 for every $3 they earn over $41,880.
It's true that waiting until age 66 is adequate to avoid forfeiture, and even those who do lose benefits can earn them back slowly because of the compensating increase in monthly benefits that the Social Security Administration provides. Nevertheless, many recipients end up realizing that the burden of waiting from 62 to 66 isn't as great as they initially thought, and that makes it easier to wait even further until age 70 to enjoy other benefits.
3. Make it easier to avoid having your Social Security benefits taxed.
One surprising thing about Social Security benefits that many people don't know is that they can be subject to income tax. To find out if you might have benefits taxed, take your total income and add in half your Social Security for the year. If the total is above $25,000 for singles or $32,000 for joint filers, then a portion of your benefits -- up to 85%, depending on your income -- could get taxed.
If you rely not only on Social Security but also withdrawals from retirement accounts like IRAs and 401(k)s, it can be hard to avoid getting your benefits taxed. Traditional IRA and 401(k) withdrawals count as taxable income that can push you above the threshold for Social Security taxation.
On the other hand, if you wait until later to take benefits, instead relying more on IRAs and 401(k)s earlier in your retirement, you probably won't pay as much tax on your Social Security. Spending down those assets will leave less of them at age 70, and the higher benefits you receive will make it less necessary to pull out additional withdrawals. That adds up to tax savings that can cut thousandsyou're your tax bill.
Most people never consider waiting until age 70 to take their Social Security benefits. Yet with many financial advantages to doing so, you should take a closer look at the positive impact of choosing to put off getting monthly Social Security payments until later than you might have initially expected.
