Why Don't More People File for Social Security at 70?

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There's a reason 62 is the most popular age to file for Social Security -- it's the earliest age you're allowed to get at those benefits. On the other hand, 70 is a fairly uncommon age to claim Social Security. As my colleague Sean Williams reported last year, only 3% of all seniors wait until 70 to take benefits. And this can only mean one thing -- that a glaring number of beneficiaries are making a huge mistake.

The problem with not waiting

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To understand why it's troublesome that so few people claim Social Security at 70, let's review how the program works. In a nutshell, your benefit payments themselves are calculated based on your 35 highest years of earnings. Once your base benefit payment is established, you'll be eligible to collect it in full upon reaching what's known as full retirement age.

Your full retirement age is based on your year of birth, as follows:

Year of Birth

Full Retirement Age

1943-1954

66

1955

66 and 2 months

1956

66 and 4 months

1957

66 and 6 months

1958

66 and 8 months

1959

66 and 10 months

1960

67

That said, you actually have an eight-year window to start collecting Social Security. As stated above, you can access your benefits as early as age 62, but if you do, you'll face a reduction in payment for every year you file before your full retirement age. For example, if your full retirement age is 66 but you take benefits at 62, you'll only end up with about 75% of your base benefit amount.

Now here's where things get interesting. If you hold off on Social Security past your full retirement age, you'll accumulate what are known as delayed retirement credits. These credits accrue up until age 70 and result in an 8% benefits increase per year. This means that if your full retirement age is 66 but you wait until 70 to claim Social Security, you'll end up collecting 132% of your base benefit amount -- for life.

Now technically speaking, you don't have to file for Social Security upon reaching 70. But since there's no financial incentive to wait any longer, it's generally considered the latest age to start taking benefits.

Why the rush to collect benefits?

So why don't more people hold off on Social Security and boost their benefits in the process? It's simple: They need or want the money sooner.

Most older workers are woefully unprepared for retirement, with close to one-third of those 55 and over having no savings to show for whatsoever. So what happens when you're forced to retire sooner than expected, which is the case for a whopping 60% of Americans? If your savings aren't enough to cover the bills, accessing your Social Security benefits seems like the most reasonable avenue to take -- which explains why so many folks file at 62.

Then there are those who take benefits early because they're convinced that Social Security is going broke, and that if they don't act quickly, there won't be enough money left over for them. But while it's true that the program is facing some fiscal challenges, it's in no danger of running out of money anytime soon, so frankly, those who rush to take benefits for this reason are falling victim to a very flawed line of thinking.

Of course, if you're in a position where you've saved adequately for retirement and your benefits are just gravy, then there's no huge danger in filing early. But that's not the case for most Americans. The median savings balance among households nearing retirement is a sorry $17,000, which, if we apply a 4% annual withdrawal rate (which has long been the standard), gives us a yearly retirement income of less than $700. In other words, most seniors need all the money they can get out of Social Security, and the fact that the overwhelming majority don't take steps to boost their benefits by waiting until 70 is glaringly problematic.

It pays to wait

If you're behind on retirement savings and are counting on Social Security to provide the bulk of your senior income, then it absolutely makes sense to hold off until 70 and boost your payments to the greatest extent possible. That said, there is one exception, and it's if your health is notably poor and you don't expect to live very long. Technically speaking, Social Security is designed to pay you the same lifetime benefit regardless of when you first file, but that assumes you live an average life expectancy. If you pass away much sooner than the average person your age, you'll lose out on benefits. On the other hand, if your health is great, there's a good chance you'll come out way ahead by claiming Social Security as late as possible.

Given that more and more Americans are now planning to work longer, we may soon see an uptick in seniors who file for benefits at 70. But if you're in your early or even mid-60s and are thinking it's time to pull the trigger on Social Security, ask yourself this: Can I really afford to lose out on potential income? If the answer is no, then take it as a sign that waiting until 70 is a move to strongly consider.

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