When Taking Social Security Benefits at 70 Makes Sense

By Matthew Frankel Markets Fool.com

You can claim Social Security as early as age 62 or as late as age 70. While it makes sense that many people claim their benefit early, it may surprise you to learn that just 3% of American workers wait until age 70 to start receiving their retirement benefit. If you're trying to figure out your ideal Social Security age, here's what waiting until 70 could mean to you, and some good reasons why you may want to wait.

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What would waiting until 70 mean for your Social Security benefit?

First, it's important to understand the financial motivation to wait. If you delay Social Security beyond your full retirement age, your benefit will increase by 8% per year (2/3% per month) until a maximum of age 70. Depending on the year you were born, your permanent increase could be as much as 32%.

If you were born in...

Your full retirement age is...

Increase for claiming at 70

1954 or earlier

66 years

32%

1955

66 years, 2 months

30.7%

1956

66 years, 4 months

29.3%

1957

66 years, 6 months

28%

1958

66 years, 8 months

26.7%

1959

66 years, 10 months

25.3%

1960 or later

67 years

24%

Data source: SSA.

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However, you should realize that your lifetime total benefit will theoretically be the same, regardless of when you choose to claim. So waiting until 70 doesn't mean that you're likely to receive more money. It just means that your monthly checks will be higher.

You don't need the money yet

One obvious reason you may want to wait until 70 is simply because you don't need the money yet. If you're still working, for example, and your salary is plenty to live a comfortable life, it might be a smart idea to wait and get higher monthly benefit checks later on.

Or maybe you're retired, but you have a pension and other savings that provide enough income. If you'd like the extra income, go ahead and claim your benefit earlier. However, if you'd rather have higher monthly income as you get older, it may be smart to hold off.

You haven't worked for 35 years yet

Your Social Security benefit is calculated by taking an inflation-adjusted average of your 35 highest-earning years. If you haven't worked for 35 years, or if you have a few low numbers weighing down your average, it can be a good idea to delay Social Security beyond your full retirement age. Doing this raises your benefit in two ways: Not only do you get the permanent increase for late retirement, but your average monthly earnings will be higher and result in a higher "base" amount.

This is a common situation for people who didn't start working until their 30s or later -- maybe you spent a decade at home with your kids, for instance. Check your Social Security statement by creating an account at www.ssa.gov if you haven't done so already, and look at the breakdown of your work record. If you don't have 35 years of substantial income, it may be a good idea to wait.

You're the higher-earning spouse

Spouses have several options when it comes to claiming Social Security, and these options can be used to create benefit-maximizing strategies. Unfortunately, Congress killed the lucrative "file-and-suspend" strategy, but there are still a few things couples may want to consider.

As one example of a strategy, the lower-earning spouse can go ahead and claim his or her benefit at full retirement age or earlier, producing an inflation-protected stream of income right away. Meanwhile, the higher-earning spouse can wait to claim Social Security until 70, since that benefit will rise more by waiting. Doing it this way also maximizes the survivor benefit if the lower-earning spouse ends up outliving the higher earner. Benefits for survivors are an important topic to know about, so here's a primer that all Social Security beneficiaries should read.

You could live longer than the average person

Finally, it's important to take your personal life expectancy into account. Of course, there is no way of knowing this for sure, but if you're 70 and in excellent shape, you have a greater chance of living until, say, 90 than someone who is 70 and overweight, all other factors being equal. Similarly, if you have a family history of heart disease, you are more likely to suffer from similar problems than someone with no family history of this.

I mentioned that theoretically, your Social Security benefits should produce the same amount of money throughout your retirement, regardless of what age you start taking benefits. However, it's important to keep in mind that this is based on averages.

So, if you have reason to believe that you may live longer than the average person of your age and gender, waiting until 70 to claim Social Security could give you the best chance of a higher lifetime benefit amount.

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