I have a tendency to be a pretty stubborn person. If there’s a food item I don’t care for, I probably won’t try your version of it, even if you swear it’s different than anything I’ve tasted before. If I have a preferred driving route, I generally won’t veer from it — even if you find me a faster way to go.
Similarly, I once had a very stubborn view of Social Security. Specifically, I was convinced that claiming benefits at 70 was the best option for most people, myself included.
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I’ve since changed my tune on Social Security. Here’s why.
How your filing age affects your Social Security benefits
Before we talk about my change of heart in the context of claiming Social Security, let’s run through some filing options.
- Full retirement age is when you get your benefits without a reduction. That age is 67 if you were born in 1960 or later.
- Age 62 is the soonest you can sign up for Social Security. Each month you claim benefits before full retirement age reduces them slightly. Filing at 62 with a full retirement age of 67 results in a roughly 30% reduction.
- Age 70 is when delayed retirement credits stop accumulating. You get those credits for waiting past full retirement age to file for benefits, and they’re worth 8% per year you wait.
Why I no longer think 70 is the best age for Social Security
You can probably figure out why I once thought claiming Social Security at 70 made the most sense. At that age, you’re getting the largest possible monthly paycheck you can — for life.
Here’s the problem with that. While waiting until 70 results in larger paychecks, it also results in a smaller number of paychecks. If you’re delaying your claim past a full retirement age of 67, for example, filing at 70 means accepting 36 fewer Social Security payments in your lifetime.
That might work out in your favor if you end up living a long life. If you don’t, you could end up with less total Social Security income by virtue of waiting.
And the tricky thing is, you can’t predict how long you’ll live. You could find yourself in outstanding health at age 62 or 67 only to decline rapidly in your early 70s. You could still be running half marathons at 74 only to pass away from a heart attack at 75.
These things are unpleasant to think about. But it’s important to consider them when deciding when to claim Social Security.
And you may, like me, reach the conclusion that waiting until 70 to file is a riskier proposition than expected. In exchange for larger individual benefits, your total lifetime payout from Social Security could end up being lower if you don’t live as long as expected.
Claiming Social Security earlier has other perks, too
The main reason I’ve changed my mind about when to claim Social Security is that I realized that unless you live well into your 80s, you may not come out with more lifetime income from the program if you delay your benefits until 70. But that’s not the only thing that spurred my change of heart.
I’ve also realized that Social Security has different functions for different people. For retirees without a lot of savings, those benefits become essential for paying everyday bills. And people who need their Social Security checks to keep the lights on probably shouldn’t take benefits early unless there’s a good reason to.
But not everyone ends up reliant on Social Security in that same way. If you end up retiring with a $3 million IRA, you may be able to use your Social Security checks as extra money to pay for travel, hobbies, and entertainment. And in that case, you may want to start getting benefits sooner to maximize strong health years.
Just as you can’t predict your own life expectancy, you can’t predict what sort of turn your health will or won’t take. But if you’re in great shape to take that month-long European trip at 62 or 63, you should. And if claiming Social Security early is your ticket to doing so, you shouldn’t force yourself to wait until 70 to take benefits if you have a nice nest egg to fall back on.
It pays to be open-minded
Although I can own up to being a stubborn person, I recognize that it helps to be open-minded about certain things. You’re never going to convince me that banana bread is delicious, because I happen to think bananas are the most loathsome food item ever created.
But when it comes to financial matters, it’s important to look at big decisions from different angles. Doing so helped me realize that claiming Social Security at 70 isn’t automatically the best option universally. And I no longer think it’s the best option for me personally.
Your filing decision should hinge on your income needs, goals, and health. And I strongly encourage you to explore different options before making that decision official, even if you already have your mind set on a specific strategy.