There's a reason the decision to claim Social Security is such a difficult one. Though your wage history will help dictate what monthly benefit you're entitled to, your filing age will also play a role in determining how much money you get each month in retirement. So it's important to make a smart decision from the start.
Now you have plenty of choices when it comes to taking benefits. The earliest age to claim Social Security is 62, and you get your complete monthly benefit at full retirement age, which, depending on your year of birth, is 66, 67, or somewhere in the middle of those two ages.
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There's also the option to delay your Social Security claim past full retirement age. For each year you do, up until age 70, your monthly benefits grow 8%. This means that at a minimum, filing at age 70 will boost your monthly payments by 24%.
You may be inclined to delay your Social Security claim if you like the sound of that. But you should know that there's a risk involved that could make it a less optimal choice.
You're betting on your own longevity
It's true that delaying Social Security will put more money in your pocket on a monthly basis. The big question, though, is whether it will give you more money on a lifetime basis. And if you end up passing away at a younger age than expected, a delayed filing could result in a lower total benefit from Social Security than what you could've gotten by signing up earlier.
Say you're eligible for $2,200 a month in Social Security at age 67. If you push your claim off until age 70, you'll bump up your monthly benefit to $2,728. And yes, that's a nice boost. But if you don't live long enough to make up for those three years of not getting benefits in between, you stand to lose out financially.
That's why delaying Social Security means taking a risk. And you'll need to decide whether waiting is worth it.
If your health is fantastic, it could make sense to sit tight and claim benefits beyond full retirement age. But if you're worried about doing that, or your health isn't stellar, then an earlier filing could be more suitable.
Calculate your break-even age no matter what
If you're not sure whether delaying Social Security makes sense for you, one thing it pays to do is calculate your break-even age. That's the age when you'd get the same lifetime benefit regardless of whether you file sooner or later.
In our example, you'd be looking at a total lifetime payout of $409,200 at age 82 1/2 based on a monthly benefit of $2,200 starting at 67 versus $2,728 starting at 70. So if you think you'll live beyond that break-even age, then it pays to delay Social Security until 70. If you're not sure, you may want to file at 67.
Or, you could meet in the middle. But you shouldn't make that decision without first running the numbers. And it's important to understand that the simple act of delaying Social Security is a risk, even if it's a calculated one.
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