Many decisions you make when you retire will affect your financial situation later in life. One of the most important is when applying for retirement benefits from Social Security. You can start getting your checks when you are just 62 years old, but you also have the option to wait until as late as 70 – and the longer you wait, the higher the amount of your monthly check.
For many retirees, taking advantage of these benefits ASAP seems to be the way to go. In fact, 62 is by far the most popular age for both men and women to begin their benefits. As many as 40% of women and 35% of men get their checks as soon as they are eligible, compared to just 7% of women and 5% of men who delay up to 70.
While on the surface it might make sense to get your money ASAP, especially with the purchasing power of benefits eroding, recent research by Capital One United Income showed that those who did not wait could end up costing a small fortune. Indeed, while Capital One’s research makes it clear that claiming 70 is not the right choice for everyone, it did reveal that as many as 57% of pensioners would build more wealth over their life periods by waiting as long as possible.
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Most retirees would benefit from waiting up to 70 to begin their benefits
Despite the fact that Social Security is one of the main sources of income for retirement, just 4% of pensioners make the financially optimal choice when it comes to the age at which they start receiving their benefits, according to research by Capital One.
Finding out the ideal age to start checks is definitely not easy, because there are many factors. But for those who play the odds, it is clear that waiting until 70 normally pays off. In fact, although more than 70% of retirees now benefit before their 64th birthday, only 6.5% of people who claim their benefits at such a young age end up with maximum viability. This is in stark contrast to the 57% of seniors who would end up better off if they waited until their seventh decade.
Applying early and making the suboptimal choice of benefits can have far-reaching consequences, including making life a lot harder in retirement. Indeed, it is expected that 13% of retirees over the age of 70 will end up living in poverty, but 7% of seniors would be cut back on this emergency if they were just waiting to claim benefits.
Why does waiting until 70 so many retirees help maximize their wealth?
Under the formula of social security benefits, those who apply for benefits in full retirement age (between 66 and 67 depending on year of birth) receive a standard benefit based on their inflation-adjusted income in the 35 years they have earned the most. Anyone who registers prior to full age for retirement is subject to monthly early fines that reduce the size of their checks, while those who delay can increase their checks for each month they wait by earning delayed retirement credits .
These delayed retirement credits can be earned until you are age 70 – so waiting to apply until that age allows you to grow the size of your monthly check as much as possible.
Theoretically, this would not have to be done, because the system is designed so that you get fewer checks, and you should receive the same amount of life income as someone who applied early and got smaller checks but got more of them. In reality, however, many people live long enough not only to break even, but to end up with more life income due to delayed benefits.
In fact, as the data shows, close to 6 in 10 people end up better off if they avoid filing fines and maximizing their delayed retirement credit, instead of accepting a smaller benefit starting at a younger age.
Waiting until 70 just for you?
It is easy to look at the data and say that close to 57% of pensions would end up better by waiting until 70. Without looking more closely at the parameters of the study, though, it is harder to find out if you among them would be – – as part of the other 43%.
The problem is, without knowing how long you will live or what will happen to Social Security in the future, you may not know the optimal benefits that strategy can use in advance.
The best thing you can do is consider your likely life expectancy based on your current history of health and family health, calculate your break-even point, and make the most informed decision possible. As long as you make an informed choice with the knowledge of how age affects your claim to benefits, you will hopefully end up with the highest benefit possible.
