Your Social Security benefits are calculated based on your earnings during your 35 highest paid years in the job. That’s a formula you have no control over. What you to be able to however, controls how high or low your monthly benefit ends based on that formula.
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Why it pays to claim social security at 70 – despite the long wait
If you claim Social Security at full retirement age, or FRA, you get the full monthly benefit that your history of earnings entitles you to. FRA is 66, 67 or 66 and a specific number of months, depending on what year you were born. You can also claim benefits as soon as age 62 – an option that many seniors skip each year. Although filing before FRA reduces your monthly benefit, you will also receive it earlier.
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But then there is the option of going the opposite extreme: claiming Social Security after FRA. For every year that you delay your submission, your benefits go up by 8%, until you reach the age of 70. It is for this reason that 70 is generally considered to be the last age to enroll in Social Security.
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Of course, the downside of submission at 70 is striking: You have to wait a very long time to collect your money, and if you do not end up with a very long life, you could end up with less Social Security income than you would have submitted by earlier. But despite that, it still pays to register benefits at 70 for one big reason: It’s the easiest guaranteed way to increase your retirement income.
The top of claiming Social Security at 70
You will often hear that there is no such thing as a risk-free investment, and that statement is true. Unless you are saving your pension in cash, there is no guarantee that you will not lose any money in your IRA or 401 (k) over the years. Eventually, your stock investments in your retirement plan could fall in value in the event of a market crash. You could buy bonds or bond funds that lose value despite their inherent stability. But if you delay Social Security past FRA, you are effectively guaranteed an annual return of 8% on those benefits in the form of an incentive. And that’s an offer that’s pretty hard to beat.
Of course, if you delay Social Security, you to do run the risk of getting away with a lower life expectancy. Encouraging your monthly benefit is great, but ultimately your goal should be to get away with as much Social Security income as you can live. When your health is poor, taking advantage of it generally does not make much sense. But if your health is in good shape, and there is no reason to think that you will not live a reasonably long life, then delaying Social Security may be your ticket to more retirement income.
It pays especially to apply for Social Security at 70 if you do not have a particularly robust IRA or 401 (k) when you approach seniors years. Social security generally replaces just 40% of your pre-retirement income if you are an average wage earner, and you would expect to need about twice that amount to maintain a decent standard of living. Increasing your benefits by waiting for submission will replace more of your previous income, so if you have the option to sit tight up to 70, it might really make sense to go that route.
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