Social Security is a main source of income for many retirees. But, before you file for your benefits, there are some things you should know, for example, if you should file early at age 62 or wait until full retirement age at 70. That said, keep reading to find out the benefits of delaying your Social Security, the reasons why you may need to file early, and what options married couples have.
Reasons You Should Delay
Most financial experts will tell you to wait until age 70 to take your Social Security benefits. And, for good reason. Even though most seniors are eligible to begin receiving benefits at age 62, waiting until age 70 to collect your benefits will ensure you receive as much as you possibly can. Just how much you receive each month will depend on the income you’ve made over the years. The higher your income, the larger your monthly Social Security check will be. The amount of your check will also depend on when you start collecting. Each year you delay, you boost the amount of your Social Security benefits by 7 percent to 8 percent.
On the other hand, taking benefits too soon can be costly. If you claim your benefits prior to reaching your full retirement age, you’ll receive a permanently reduced monthly benefit for the rest of your life. But, if you can hold out until age 70, your benefits won’t be reduced. So, just how much money can you miss out on? Well, according to CBS News, a study conducted by United Income, an online investment management and financial planning firm, found that the majority of retirees who start taking Social Security benefits at the wrong time lose out on $111,000!
-If you decide to delay, make sure you sign up for just Medicare at age 65. Failing to do so can delay coverage and increase coverage costs.
–Do NOT delay your benefits any further than age 70. For one, it won’t result in a higher benefit. Your benefit amount maxes out when you turn 70. Two, Social Security will pay only a maximum of six months of retroactive benefits. Waiting any longer may cause you to forfeit some of your benefits.
-If you plan to delay your benefits until age 70, you should claim your benefits at age 69 and 9 months. That’s because when you file a claim for Social Security, the money doesn’t start rolling in right away. In fact, there is typically a three-month delay. So you need to file your claim a few months ahead of your 70th birthday to make sure you receive them by then.
Reasons You Shouldn’t Delay
While delaying your Social Security benefits is a good idea, it doesn’t always pay off for everyone. This is especially true for people with health issues. Now, none of us knows how long we are going to live, but if you are a smoker or previously smoked, have a number of medical conditions, or are overweight, your chances of living to the ripe old age of 90 are lowered significantly. That being said, The Motley Fool says that when you think about maximizing your Social Security benefits, you should do so on a lifetime basis as opposed to a monthly basis — which, unfortunately, is how the majority of us think. In other words, you need to assess your likelihood of living a longer life versus a shorter one, and then plan accordingly.
So, as we just mentioned, the first step in assessing how long you may live is by evaluating your health condition. The second step is to evaluate your family history. Believe it or not, the ages your parents, grandparents and siblings were when they passed away can (but not always) predict the age at which you’ll meet your demise. If your parents and grandparents lived long lives, there’s a pretty good chance you will too. But, if they died relatively young, then you know that there is the possibility that you may die somewhat young also, so waiting until you turn 70 years old to file for Social Security won’t make much sense for you. That’s because you can actually LOSE out on money if you wait. The Motley Fool explains how in this example:
“Imagine you’re entitled to a $1,600 monthly benefit at a full retirement age of 67. Waiting until 70 will give you an extra $384 a month, which might seem like a good thing. But here’s the catch — if you only live until age 77, you’ll actually end up losing out on over $25,000 of lifetime Social Security income by filing at 70 versus 67. In fact, in that scenario, it actually pays to file at the earliest possible age of 62, because despite your reduction in monthly benefits, in doing so, you’ll wind up with $9,600 more in lifetime income than you’d get by filing on time at 67.”
What You Should Do if You’re Married
As a married person, you have more options when it comes to claiming Social Security than single people. For example, couples with similar incomes and ages and long life expectancies can both delay their Social Security, thereby maximizing lifetime benefits. Plus, delaying your retirement will potentially increase the future survivor benefit of your spouse. And, couples with big differences in income can always claim the spousal benefit (50 percent of their spouse’s benefit) instead of their own work benefit.
If, by chance, one spouse is expected to outlive the other, it may be a good idea to have the older spouse delay taking Social Security to receive full benefits. That way the surviving spouse will ultimately get paid a larger benefit.
Couples with shorter life expectancies will want to file for Social Security earlier but need to keep in mind that doing so will not only reduce their lifetime benefit, it will reduce the survivor benefit available as well. Also, keep in mind that once you start receiving your Social Security benefits, you typically can’t switch from spousal benefits to your own work benefits and vice versa. This is true regardless of when you file — be it at age 62 or at age 70.
FYI, spousal benefits are available to divorced people who stayed in their marriages for at least 10 years and who have NOT remarried. The rules for divorced couples vary slightly, so be sure to check with the Social Security Administration to make sure you get a full understanding of what’s available to you.
Before making your final decision, make sure you connect with a financial advisor to explore your options on when and how to file for Social Security benefits.
For more retirement tips, check out this article on the ten countries you can retire to for less than $200,000.