Many seniors rely on Social Security to provide a large portion of their retirement income. And there’s a good chance you’ll end up doing the same. As such, it is important to get as much money out of the program as possible.
Now you will often hear that a guaranteed way to get a higher monthly benefit is to apply for Social Security after full retirement age, or FRA. FRA is when you can receive the monthly benefits to which you are entitled based on your income. If you were born in 1960 or later, the FRA kicks in at 67.
Of course, many older people rush to claim their pre-FRA benefits – you can do so from age 62 – and reduce those monthly payments in the process. But for each month you delay your deposit beyond FRA, your benefit will increase by around 2/3 of 1%. Or, to put it another way, for every year you delay reporting, your benefits will increase by 8%.
The deferred retirement credits that you accumulate by deferring your deposit will stop accumulating once you reach age 70. As such, 70 is generally considered the last age to register for Social Security, although you can technically choose to delay your filing beyond that point. . And if you look at an FRA of 67, depositing at 70 means increasing your benefits by a pretty impressive 24%.
But while you’ll often hear that delaying your deposit until age 70 is a sure-fire way to increase your benefits, this strategy could come back to bite you, too. Here’s why.
Look at the big picture
Delaying your deposit beyond FRA will give you a higher benefit on a monthly basis. But will it give you a better lifetime benefit? Maybe not.
Filing for Social Security at age 70 makes sense when you expect to live a reasonably long life. But if you don’t think that’s going to happen, whether it’s due to pre-existing health issues or your family history, delaying your deposit for as long as possible may not be the best way to withdraw more money. social security.
Suppose you are entitled to a monthly benefit of $ 1,500 with an FRA of 67. Waiting up to age 70 to file your return will instead give you $ 1,860 per month.
If you live to age 82 and a half, you will break even, which means you will end up raising $ 279,000 whether you deposit with FRA or wait until 70. But if you only live to age 78, delaying your filing until age 70 will cause you to lose over $ 19,400 in lifetime benefits, even though your monthly benefit will be higher.
For this reason, Social Security’s deferral strategy may not be the best for you. While it is impossible to predict your own mortality, you will have to face the reality that delaying the deposit comes with some risk. So if your goal is to get as much money out of Social Security as possible, an earlier filing date may be a better choice.
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