It’s all about locking in a guaranteed income stream.
One neat thing about Social Security is that eligible recipients get a choice as to when to start taking benefits. If you want to retire early, you can sign up for Social Security as early at age 62, albeit at a reduced rate.
But if you’re willing to sit tight a bit longer, you can hold off on filing for Social Security until full retirement age (FRA), which is when you’re entitled to your full monthly benefit based on your personal earnings history. FRA is 66, 67, or somewhere in between, depending on when you were born.
However, there’s also the option to delay your Social Security claim until the age of 70. Beyond that point, you could technically wait to file, but there’s no financial incentive to do so. But for each year you delay your claim beyond FRA, up until age 70, your monthly benefits get to grow 8%.
The idea of filing for Social Security at age 70 may not appeal to you so much at first. After all, you’ll be forcing yourself to wait years for benefits you’re eligible for much sooner.
But there’s one really good reason to consider postponing your filing until age 70. And it’s one that might sway you to exercise patience.
When you want more guaranteed income
You might enter retirement with a nest egg worth $1 million, $2 million, or more. But let’s face it. No matter how much savings you’re starting off with, there’s always the fear of depleting your nest egg at some point in your lifetime.
This isn’t to say that you can’t take steps to mitigate that concern, like working with a financial advisor to devise a withdrawal strategy that makes sense for your situation. But even then, there’s technically no guarantee that your money won’t run out on you at some point.
On the other hand, the monthly Social Security benefit you lock at the time that you file is the benefit you’re guaranteed for life. You won’t receive the same exact paycheck throughout retirement, because Social Security benefits are eligible for annual cost-of-living adjustments. So on a year-to-year basis, your benefits should rise to adjust for inflation.
But for the most part, when you sign up for Social Security, you’re locking in a monthly benefit. And so the higher that benefit is, the more guaranteed income you get for life. It’s really that simple.
Waiting could pay off
For some people, claiming Social Security at age 70 means having to work until the age of 70. And that may be far from ideal.
But let’s say your preferred retirement age is 67 and you push yourself to wait until age 70 instead. That three-year sacrifice could result in 30 years or more of a much higher monthly benefit. So before you write off the idea of claiming Social Security at age 70, think about the financial freedom it might result in. And also, consider the peace of mind a higher monthly benefit might bring you throughout retirement.
