Unmasked Hazards of Delaying Social Security Retirement Benefits Until Age 70
Claiming Social Security benefits at the age of 70 can be an attractive option for some, as it offers the potential for a larger monthly payment. However, it's essential to weigh the potential advantages against the possible disadvantages before making a decision.
Potential Advantages
- Larger Monthly Payments: Delaying your Social Security claim until 70 can result in a significant increase in your monthly payment. Compared to claiming at full retirement age (around 66-67), you could see an increase of up to 24%.
Potential Disadvantages
Shorter Lifetime Benefit Total
One of the main disadvantages of claiming at 70 is the risk of receiving fewer total benefits if your lifespan is shorter than expected. Although a higher monthly payment may seem appealing, if you live a shorter life (e.g., until age 78), you might collect less total money over your lifetime than if claiming earlier.
For example, delaying until 70 may yield a higher monthly benefit ($2,100 vs. $1,200 at age 62 in a given scenario), but if you pass away around 78, the cumulative benefits are less than those who claimed earlier.
Opportunity Cost of Delayed Payments
By waiting until 70, you forego payments for ages 62 to 70, which could have been used for living expenses or invested elsewhere.
Less Flexibility for Early Needs
Delaying your Social Security claim assumes you can postpone access without hardship. However, if you need funds earlier due to unexpected expenses or poor health, waiting until 70 may not be feasible.
Potential Impact on Taxes
Working while delaying benefits may lead to tax complexities and possible benefit taxation.
Budget Strain Before Benefits Start
Another disadvantage is the strain on your budget while covering all living expenses without Social Security benefits until 70.
Other Factors to Consider
- Impact on Spouse or Dependents: Delaying your claim can limit your spouse's or dependent's choice of when to apply.
- Household Financial Planning: You may prefer to sign up earlier, even if it means getting less yourself, to help your household take in multiple checks.
- Eligibility for Dependent Benefits: If you have a spouse or minor/disabled children, they may be eligible to claim benefits on your work record, but only after you apply for your own checks.
- Changing Your Claiming Age: It's possible to change your Social Security claiming age as you get closer to retirement. You can claim Social Security benefits at any point between the full retirement age and 70.
In summary, the main disadvantages of claiming Social Security at age 70 are the possibility of lower accumulated lifetime benefits if you die relatively early, and the delayed access to those funds which might be needed sooner for financial or health reasons. It's crucial to discuss your Social Security claiming strategy with your partner to ensure the best decision for the household as a whole. Make sure you understand the pros and cons of your chosen claiming age to avoid being caught off guard once your benefit checks start coming in.
- Increasing your personal-finance assets by waiting to claim Social Security at 70 may provide larger monthly payments, but it could strain your budget before the benefits start due to the delayed access to funds typically received between ages 62 and 70.
- The opportunity cost of delayed payments should be carefully considered, as the foregone payments could have been utilized for living expenses or investment in personal-finance, potentially yielding greater returns over time.
