For many people approaching retirement, the decision of when to claim Social Security is a crucial one. While the traditional advice has been to wait until 70 to maximize monthly benefits, some are rethinking this approach.
The Traditional Advice: Claiming Social Security at 70
For years, the prevailing advice has been to delay claiming Social Security benefits until the age of 70. This strategy is rooted in the idea that the longer you wait, the higher your monthly benefit will be.
Social Security benefits increase by about 8% each year you delay past your full retirement age (FRA), which is typically between 66 and 67, depending on your birth year. By waiting until 70, many people can significantly increase their monthly check.
Social Security is a key part of many Americans’ retirement plans, and the financial advice surrounding it encourages delaying benefits to maximize the long-term payout.
The idea is that if you live long enough into retirement, those extra years of higher payments will more than make up for the years you delayed receiving benefits.
However, after doing more research and reflecting on my personal situation, I’ve realized that this advice might not be the best option for everyone. Here’s why I’m rethinking my approach.
The Impact of Increased Longevity
One of the most common reasons people are advised to wait until 70 to claim Social Security is the potential for longevity. Many assume that if you live long enough, the larger monthly payments will outweigh the years of benefits you missed by delaying.
However, while it’s true that waiting until 70 can increase your lifetime benefits, it’s not guaranteed that everyone will live long enough to see the benefits of waiting.
According to the Social Security Administration (SSA), the average life expectancy for men is around 74 years, and for women, it is around 79 years.
This data suggests that not everyone will make it to an age where the delayed benefits significantly outweigh the earlier payments.
In my case, after considering family health history and my own risk factors, I began to question whether waiting until 70 made sense.
If I were to pass away before reaching an age where the larger benefits would outweigh the earlier claims, it could leave my beneficiaries with far less than I would have received by claiming earlier.
Immediate Cash Flow Needs
Another factor that has influenced my decision is the need for immediate cash flow. Retirement can be expensive, and while many people anticipate their expenses will decrease once they stop working, that isn’t always the case.
Healthcare costs, home repairs, and other unforeseen expenses can arise, making it necessary to have access to a reliable source of income.
By delaying Social Security until 70, I would be missing out on a substantial amount of money in the interim. If I were to claim earlier—at 62, for instance—I could use those funds to cover expenses or invest in other income-generating opportunities.
For some, especially those without a pension or substantial retirement savings, having this income earlier could be more beneficial than waiting for a higher payout down the road.
For more on Social Security options and how to claim, visit the SSA’s website here: www.ssa.gov.
Taxes and Potential Penalties
Delaying Social Security benefits also means living off personal savings, and this often involves drawing down retirement funds, which can trigger taxes. In addition to income taxes, withdrawals from tax-deferred accounts like traditional IRAs and 401(k)s are taxed at ordinary income rates.
For many retirees, drawing down these accounts while waiting for Social Security to kick in at 70 can result in a tax burden that may offset the benefit of waiting for larger payments.
This situation is particularly significant for those who have a substantial nest egg and are able to claim Social Security early without financial strain. In my case, accessing the funds sooner would allow me to avoid depleting savings prematurely while minimizing tax obligations down the line.
Flexibility and Peace of Mind
Another consideration is the flexibility that claiming Social Security earlier provides. By claiming at 62 or 65, I could potentially have more financial flexibility to explore other opportunities, such as part-time work, travel, or starting a small business.
Waiting until 70 might limit that flexibility, as I would be focused on drawing down personal savings and waiting for a larger monthly check.
For some, this flexibility can provide peace of mind in retirement, knowing they aren’t solely reliant on Social Security benefits.
Claiming Social Security earlier gives more immediate access to funds, which could be used to supplement other sources of income or provide a buffer against economic uncertainties.
Conclusion: Rethinking the Timing
While waiting until 70 to claim Social Security can be a good strategy for many, it’s not the best choice for everyone. Factors like life expectancy, immediate financial needs, taxes, and flexibility all play important roles in the decision.
For me, after carefully weighing these considerations, I’ve decided that claiming earlier is the better option. It gives me the financial freedom I need now and provides peace of mind in my retirement years.
It’s important for everyone to carefully consider their own financial situation, goals, and health when deciding when to claim Social Security.
Consulting with a financial advisor and utilizing the SSA’s tools for estimating benefits can help guide this important decision. Explore SSA’s benefits calculators here.
For many retirees, the decision to claim Social Security is one of the most significant financial decisions they will make.
Understanding all the factors at play, and not just following conventional advice, can help ensure that your choice is the right one for your individual situation.
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