Claiming Social Security at Age 70 Boosts Your Check 24% -- But There's a Big Catch
Delaying Social Security benefits past full retirement age results in an 8% annual increase in payout until age 70. If your full retirement age is 67, for example, waiting until 70 to file builds in an extra 24% to each of your monthly checks for life.
Scroll down to explore how much that actually covers for those who wait -- and the price they could have to pay.
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What the Wait Costs, and What It Returns
Imagine a worker with a full retirement age of 67 and a $2,000 monthly benefit due at that age. By waiting until age 70 to file, that worker’s monthly check will rise by 24%, to $2,480. That amounts to a $5,760 annual increase for life, and that’s without factoring in any inflationary adjustments.
It also means that the worker has given up the chance to receive $2,000 monthly checks over the prior three years. The net result is that in exchange for the increased benefits going forward, that worker missed out on collecting $72,000 in benefits over those three years.
If you divide the $72,000 in missed payments by the $480 in increased future income, it will take about 150 months to reach the “break-even” point. For a 70-year-old worker, it means a waiting period until nearly age 83 before the higher checks fully make up for the ones that were skipped.
How Much of a Paycheck the Higher Benefit Replaces
Data from the SSA shows that Social Security replaces as much as 79% of pre-retirement earnings for very low earners. Those percentages drop to about 43% for medium earners and about 28% for the highest earners. While delaying until age 70 increases this replacement rate for medium and higher earners, Social Security still won’t reach the 70% to 80% of pre-retirement income that most financial planners target for retirees.
The other complicating factor is that delaying benefits until age 70 means retirees won’t receive any Social Security benefits at all for their first three years after full retirement age. This can lead to increased drawdowns from retirement accounts, shortening the number of years that they can provide added income.
Waiting Doesn’t Actually 'Add Income'
It’s true that claiming at age 70 produces the largest possible Social Security check a worker can get. However, the formula for calculating benefits remains the same regardless of when you file. Your earnings history dictates your total benefit. The age you file simply determines how your payout will be shaped. If you claim Social Security at 62, you’ll get smaller checks for the rest of your life, but you’ll also receive them for eight more years than if you filed at 70, at which point you would receive fewer, bigger checks.
Filing for Social Security at “the right time” can be tricky because no one knows how long they will live. A worker determined to maximize their benefit by waiting to file at age 70 would have been better off filing at 62 if they die at age 71. Similarly, a worker who files at 62 but lives to 100 would have greatly increased their lifetime income by waiting to file until age 70. This is why factors like family history and outside assets play a big role in determining when an individual should file for Social Security benefits.
Before making a decision on when to start collecting Social Security it never hurts to consult a financial advisor.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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