Social Security is rather important to most of us -- or it will be, at some point. Without the income it provides, more than 22 million Americans would be in poverty, according to a 2016 report from the Center on Budget and Policy Priorities.
When you start collecting your Social Security retirement benefits will determine, to a large degree, just how big your checks are. You can start anytime between age 62 and 70, and delaying until 70 will result in fatter checks. But should you delay that long? Here are three bad reasons to wait until 70.
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1. Because you think you can't afford to retire earlier
If you're just assuming that you can't afford to retire earlier than age 70 and should just keep working until then, think again. That's indeed the reality for many people, but it might not be so for you. You might not have enough socked away to retire right now, but there's a good chance that if you get more aggressive about saving and you invest your money effectively, you can make your retirement happen sooner. Take some time to devise a plan, estimating how much income you'll need in retirement and how you'll get it. Here's how much you might amass, depending on how far from retirement you are:
Growing at 8% for
$5,000 invested annually
$10,000 invested annually
$15,000 invested annually
Some or much of your nest egg might be used to buy fixed annuity income, and/or it could be parked in dividend-paying stocks. A $300,000 portfolio with an average dividend yield of 4% will generate $12,000 per year -- $1,000 per month. There are ways to boost your income in retirement, too.
Remember also that many people who plan to retire at 70 or later end up retiring earlier, due to an unexpected job loss, or a health setback, or having to care for a loved one, among other reasons. In retirement planning, it makes sense to aim to be able to retire as early as possible. That's not a pie-in-the-sky goal, either -- you might be able to do it!
2. Because you think bigger checks will always mean getting more from Social Security
You can make your retirement benefit check bigger than what you'd get if you started collecting at your full retirement age -- by delaying when you start collecting. That's not always the best thing to do, though.
First, understand that the age at which you can start collecting what the Social Security Administration has calculated to be your full benefits is referred to as your full retirement age (FRA). It used to be 65 for everyone, but to strengthen the Social Security system, the age was later increased. For those born in 1937 or earlier, it's 65; for those born in 1960 or later, it's 67; and for those born between 1937 and 1960, it's somewhere in between.
Regardless of what your FRA is, you can claim your benefits as early as 62 and as late as 70. For every year beyond your FRA that you delay starting to receive benefits, you'll increase their value by about 8% -- until age 70. So delaying from 67 to 70 can plump up your checks by about 24%.
The ability to boost a monthly check of, say, $2,000 to $2,400 can seem too good to pass up, but hold on. The Social Security Administration says: "If you live to the average life expectancy for someone your age, you will receive about the same amount in lifetime benefits no matter whether you choose to start receiving benefits at age 62, full retirement age, age 70 or any age in between." Remember, after all, that while delaying from 67 until 70 can add $400 to your monthly checks for the rest of your life (plus inflation-related increases), you'll miss out on three years of $2,000 checks -- 36 of them, which total $72,000.
Those who think they have a good chance of living a longer-than-average life can do well by delaying until 70 to get those fatter checks. But for about half of us, delaying isn't likely to make as big a difference as we think -- and we might even end up with fewer total benefit dollars. Don't assume that bigger checks will always deliver more total dollars to you.
3. Because you're still working and think your benefits would get reduced if you claimed earlier
A last bad reason to delay collecting until 70 is if you're doing so because you're still working and want to avoid having your benefits reduced. What's wrong with that thinking? Well, benefits do get reduced if you earn more than a certain sum while collecting benefits before your FRA. The Social Security Administration explains: "If you're younger than full retirement age during all of 2018, we must deduct $1 from your benefits for each $2 you earn above $17,040." Here's a critical detail, though: The money withheld isn't lost. It's factored into the benefit checks you receive later, which end up increased.
Once you reach your FRA, though, you can collect Social Security benefits and can earn any amount of money, and your benefits won't be reduced. Thus, don't wait until age 70 to start collecting your benefits just to avoid having your benefits reduced.
Good reasons to take Social Security benefits at 70
Despite the three bad reasons above for delaying starting to collect Social Security until 70, there actually are some good reasons to do so. For example, if you expect to have sufficient income until age 70 to support a comfortable and satisfying retirement, you might delay collecting. If your family members tend to live lives that are well above average length and you're healthy and expecting to live a very long life, too, then delaying until 70 is likely to increase your total benefit dollars received.
Everyone's calculations will be different, so think about the good and bad reasons above before deciding when to start collecting your benefits. Remember, too, that there are even more ways to get the most out of Social Security.
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