Millions of older Americans rely on Social Security for their monthly income, and without it, many would struggle to meet their basic living expenses. This makes it crucial to approach Social Security claims with a strategic mindset and to comprehend the impact of filing at different ages.
The earliest age you can file for Social Security is 62. However, you’re only eligible for your full monthly benefit, based on your earnings history, once you reach full retirement age. For individuals like me, born in 1960 or later, that age is 67.
There is a significant benefit to postponing Social Security beyond full retirement age. For every year you delay, up until age 70, your monthly benefits increase by 8%. Therefore, waiting can substantially boost your monthly income.
Initially, I believed that 70 was the optimal age to claim Social Security due to the strong incentives. However, my perspective has evolved. Here’s why:
There is an inherent risk
While claiming Social Security at 70 locks in a higher monthly benefit, it doesn’t guarantee a higher lifetime benefit.
No one can predict their lifespan, and this uncertainty makes waiting until 70 a risky gamble, as it means forgoing years of benefits earlier on.
The general rule is: If you live longer than average, claiming at 70 is beneficial. If you live an average lifespan, your filing age is less significant as you generally break even. If you have a shorter lifespan, claiming earlier is financially advantageous.
Given the unpredictability of life expectancy, the real question is whether you’re willing to risk reducing your lifetime income by waiting until 70. If not, you might consider filing sooner. This is how my thinking has changed.
Sometimes, waiting isn’t desirable
Another reason I no longer plan to claim Social Security at 70 is my commitment to saving for retirement. Throughout my career, I’ve made financial sacrifices, such as opting for a modest house and cars, to prioritize my savings. Because of this, I feel entitled to claim Social Security earlier and enjoy the benefits.
Moreover, because I have been diligent about saving and plan to continue, I hope Social Security will serve as supplementary income, allowing me to cover basic expenses through my savings. Therefore, claiming benefits before 70 and receiving a lower monthly amount isn’t necessarily an issue for me.
However, if you’re nearing retirement with limited savings, you might want to delay your Social Security claim—at least until you reach full retirement age—to avoid financial hardships, like skipping medications or meals due to insufficient income.
There’s still flexibility to reconsider
I anticipate a long career ahead, so I don’t need to decide on my Social Security filing date just yet. You might find yourself in a similar situation.
While I wouldn’t advise committing to a specific filing age in your 40s or 50s, I do recommend contemplating when you might want to claim benefits. This can shape your savings strategy in the coming years.
If you plan to claim Social Security at 70, it might alleviate some pressure to max out your IRA or 401(k) contributions (though you should still aim to contribute if your savings are on track). Conversely, if you aim to claim as early as possible, you may need to increase your savings to offset a reduced monthly benefit.
It’s perfectly acceptable to change your mind about when to claim Social Security. I’ve reconsidered several times over the past decade. Regardless, it’s wise to evaluate your options and understand the potential consequences of each choice.
