For certain retirees, opting for Social Security benefits at age 70 might not yield the anticipated results.
It's a regrettable truth that numerous elderly Americans start their retirement with meager savings. According to the Federal Reserve, as of 2022, the median retirement plan balance among seniors aged 65 to 74 amounts to only $200,000. Although a robust stock market may have increased this figure since the data was compiled, many retirees today have limited savings based on their life expectancies.
Consequently, a substantial number of individuals entering retirement become heavily dependent on Social Security to meet their living expenses. And for those without savings, it's often recommended to extract as much money as feasible from the program.
This could mean holding off on your Social Security claim until the age of 70. Though not a foolish plan in theory, there are potential pitfalls.
When you fall short on lifelong income
Deferring Social Security beyond its full retirement age leads to an elevated monthly benefit for the remainder of your life. If your full retirement age is 67 (as it is for individuals born in 1960 or later), then the opportunity to elevate your monthly Social Security income by 24% by signing up at age 70 is appealing if you're cash-strapped.
However, delaying Social Security comes with risks. You may receive a larger monthly income, but whether that translates to a lifelong boost depends on how long you live. In other words, you have to live long enough to compensate for the years you skipped out on receiving a monthly benefit.
Often, one's health is suggested as a determinant of when to claim Social Security. The reasoning is that, if your health is robust, then it makes sense to defer Social Security for a more substantial monthly check if your health permits a longer life to make the delayed filing pay off.
However, even healthy people can experience health complications or untimely deaths, which means delaying Social Security is, in essence, a gamble. The question is, is the allure of a larger monthly paycheck worth the risk?
That's for you to decide.
How severely do you need the additional income?
If you're unsure that filing for Social Security at 70 is the optimal choice, it might be worth contemplating the severity of your requirement for that increased benefit. If you have some savings, you may opt to apply for Social Security at full retirement age, forgoing that increase. If you have no savings whatsoever, you might arrive at a different conclusion.
Of course, some retirees experience significant gains by delaying Social Security until the age of 70. However, it's crucial to weigh whether you're prepared to jeopardize your lifelong income before foregoing your Social Security application if you'd prefer to avoid risk. If taking chances isn't your cup of tea, then filing for Social Security at your full retirement age might be a more comfortable choice.
In light of limited retirement savings, some individuals might consider extracting as much money as possible from Social Security due to financial needs. Delaying Social Security claims beyond the full retirement age can indeed provide an enhanced monthly income, but it's important to consider the risks involved as longevity and health are key factors in determining if this strategy is worthwhile.
For retirees with substantial savings, the decision to claim Social Security at 70 might not be necessary, eliminating the gamble involved in delaying benefits for a larger monthly payment.
