Every year you wait to receive your Social Security payments will increase the size of your benefit check, so it makes sense that a retiree may want to wait until age 70 to maximize benefits.
But while the general advice is to hold off until you’re 70 if you can, doing so doesn’t work for all retirees. And in some cases, doing so can cost you.
What is the benefit of delaying Social Security?
First, it’s important to understand how waiting to take your Social Security benefits can help you. Your Social Security income increases by 8% each year you defer it. It is a low-risk, inflation-adjusted source of income that offers guaranteed payouts.
You will also have to pay taxes on up to 85% of your Social Security benefits if your income exceeds certain limits. If you are still working and claiming benefits, your payments may put you over that limit.
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Why Social Security delays can cost you
You can start receiving Social Security benefits when you turn 62. While waiting until age 70 means bigger paychecks, that’s only if you live long enough to reap those benefits. If you passed away at age 69, for example, you would not receive any Social Security. Even if you live into your early 70s, you can miss out on income.
Of course, we never know what will happen in the future. But it’s important to consider the potential costs of quitting – as well as any negative health history in your family – when deciding whether or not it’s worth it.
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Consider your spouse’s benefits
Spousal benefits start to apply when one spouse earns more than the other. The lower-earning spouse can receive up to 50% of the partner’s full retirement benefit if that figure is more than his or her own.
Some spouses decide that the lower-income partner should claim benefits as soon as possible to ensure additional income, while the other spouse waits until age 70. This decision will depend on factors such as your gross income, nest egg and living expenses, and other factors. This “separation strategy” can make sense for some couples, even if waiting for both spouses can mean bigger paychecks for both later in life.
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Decide what is right for you
Heeding popular advice — like waiting until age 70 to get Social Security — doesn’t always make sense. Personal finance is, as the name suggests, personal.
The best time to claim Social Security depends on your financial situation, and you shouldn’t assume that turning 62 or 70 is when you should start. Consider factors such as your health, spousal benefits and taxes to determine when you can start receiving your paychecks. If you’re not sure, consider talking to a financial advisor.
