Personal Finance

Social Security: Why Delaying Benefits Can Be Incredibly Rewarding

True or false: It doesn't matter when you start taking Social Security benefits.

It's true that if you live to your average life expectancy and depart this world "on time," you'll receive about the same amount in lifetime benefits no matter when you start taking them. That's because the earlier you start, the lower your monthly payout will be, but the longer you'll receive those checks. And if you delay benefits, you'll receive bigger checks -- but for less time.

But the answer to the question, in reality, is false . Unless you're too wealthy to care, it matters very much how big your monthly check will be once you finally start receiving it.

Two big reasons to delay Social Security benefits

You can start taking Social Security benefits anytime between the ages of 62 and 70. There are many reasons to delay taking your benefits, and you shouldn't make a purely emotional decision to start receiving the monthly checks just because you can.

I talked with Jean Setzfand, vice president of financial security at AARP, about this issue. In the video below, she gives two big reasons to hold out until your full retirement age (between 65 and 67, depending on your date of birth), or even age 70 (the age beyond which there are no benefits to waiting).

Increase your monthly paycheck by 75%

For most people, aiming for the lifetime breakeven point is a misguided approach to this important decision. Instead, you should consider what kind of monthly check you'll need -- combined with your other sources of income -- to achieve the quality of life you want in retirement.

You can increase your annual take by 8% each year you wait past age 62. By waiting until age 70, you're looking at roughly 75% more income per month compared to age 62. For someone who is now near the minimum retirement age and who averaged about $25,000 in annual income over the years, that's the difference between $866 each month and $1,524.

Married couples have other considerations, and they might get the most out of Social Security by having one person file early for benefits and then suspend them. Divorced couples have different issues entirely . I highly recommend reading through the Social Security Administration's website to get the most out of your particular situation.

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Video transcript:

If you're thinking about SS benefits and the different ages, think about this: What other investment will give you a return of 8%? That's essentially what waiting one year will give you. Another way to think about it -- full retirement age versus. 62. The difference between those benefits is roughly 30%. But if you actually wait until 70, the differential is well over 70%. So that's a huge difference in terms of your total take-home on a monthly basis.

Another thing to think about -- the monthly benefit is what really impacts your standard of living. So from AARP's point of view, in order to maximize your standard of living, you want to maximize your monthly take-home, rather than your lifetime. That's the whole breakeven point, which we really shy away from, because that really doesn't make your life actually better if you think about it from a lifetime standpoint versus what you actually take home and what you need on a monthly basis.

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