Millions of older Americans collect a monthly benefit from Social Security. And without that money, many would no doubt struggle to cover their basic living costs. Because of this, it's important to claim Social Security strategically -- and to understand the implications of filing at different ages.
The earliest age to file for Social Security is 62. But you're not eligible for your complete monthly benefit based on your individual income history until full retirement age arrives. For people like me who were born in 1960 or later, that age is 67.
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There's also a big advantage to delaying Social Security past full retirement age. For each year you do, up until age 70, your monthly benefits grow 8%. So all told, waiting could set you up for a lot more money each month.
Because there's such a huge incentive to claim Social Security at 70, I used to think that was the best age for me to sign up. But I've since changed my tune. Here's why.
There's a risk involved
The upside of claiming Social Security at age 70 is locking in a higher monthly benefit. But it doesn't mean locking in a higher lifetime benefit.
Nobody knows how long they'll live. But because of this, waiting until age 70 to claim Social Security is a risky prospect, since it means losing out on years of benefits earlier on.
Basically, the general formula goes like this: If you end up living a longer life than average, then a claim at age 70 works in your favor. If you end up living an average life expectancy, your filing age tends to not matter so much because you largely break even either way. And if you end up living a shorter life, an early claim works out best financially.
There's no way to know what's in store as far as anyone's life expectancy goes. So the real question you need to ask yourself in the context of claiming Social Security at 70 is whether you want to take the risk of shorting yourself on lifetime income. If you don't, then you may want to file sooner. That's the way my thinking had shifted.
Sometimes, you just don't want to wait
There's another reason I no longer want to claim Social Security at 70. I've worked hard to save for retirement throughout my career. And I've made financial sacrifices that have allowed me to consistently fund my savings. I've given up things like a nicer house and better cars to focus on my nest egg. Because of this, I should be entitled to claim Social Security at an earlier age and enjoy that money to the fullest.
Plus, because I've been saving so aggressively and intend to continue doing so, I hope to have Social Security serve as a source of extra money for me. But I hope to be able to pay for my basic needs out of savings. Because of this, claiming benefits earlier than age 70 and getting less money each month isn't necessarily problematic for me.
However, if you're approaching retirement with little savings, then you may want to consider a later Social Security filing -- or at least wait until your full retirement age arrives. You don't want to end up in a situation where you have to skip medication doses or meals because you don't have enough retirement income.
There's still time to change my mind
I don't expect to retire for a pretty long time, which means I don't have to commit to an official Social Security filing date anytime soon. And you may be in the same boat.
But while I wouldn't tell you to lock in a filing age with absolute certainty during your 40s or 50s, I would encourage you to put some thought into when you might want to take benefits. The reason? It could influence your savings strategy in the coming years.
If you intend to file for Social Security at age 70, then it might take a little bit of the pressure off with regard to funding your IRA or 401(k) plan (you should still aim to make contributions, but you may not need to pressure yourself into maxing out if your savings are on track thus far). And if you know you want to claim Social Security as early as possible, then you may want to boost your savings to compensate for a smaller monthly benefit.
You should know that it's also OK to change your mind about when to claim Social Security. I've done that at least a couple of times over the past 10 years or so. But either way, it's smart to think through your options and understand what implications each decision might have.
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