One of retirees’ most crucial decisions is when to start claiming Social Security benefits. While you can begin receiving payments as early as age 62, waiting until age 70 guarantees maximum benefit. However, this approach may not be suitable for everyone.
To make an informed choice, it’s essential to understand the Social Security ‘break-even’ point—the age at which the total benefits received from delaying your claim surpass those from claiming earlier.
So, is waiting for Social Security worth it?
Calculating the Break-Even Point
Typically, reaching the break-even threshold can take several years.
For example, if your full retirement age benefit is $1,000 per month, claiming at age 62 would reduce that amount by 30%, resulting in a $700 monthly payment.
In this scenario, if you wait until age 65 to receive benefits, you would reach the break-even point after 77.5 years. Delaying until your full retirement age of 67 would mean breaking even after 78.5 years, while waiting until age 70 would have you breaking even just before reaching 80.5 years.
Since reaching the break-even point can take a long time, it’s important to note that waiting to claim Social Security may not be the best choice for individuals with health concerns that could shorten their lifespan or those burdened with significant debts.
However, experts suggest delaying claims as long as feasible for others.
Factors to Consider While Deciding When to Claim
When deciding when to claim Social Security benefits, several factors should be considered beyond the break-even point. These include:
- Life expectancy: If you expect to live long, delaying benefits can result in a higher lifetime payout.
- Spousal benefits: If you’re married, your decision can impact your spouse’s benefits after your passing. Starting benefits earlier may lead to reduced survivor benefits for your partner.
- Other retirement assets: Your decision might be influenced by other retirement assets, such as pensions or individual retirement accounts.
- Inflation: Rising inflation should be considered alongside your health, as the timing of increased expenses could significantly affect your retirement budget.
Consulting a financial advisor can be beneficial when evaluating the Social Security break-even point. They can assist you in developing the best strategy by using a break-even calculator and thoroughly analyzing your financial situation.
The Benefits of Delaying Social Security
Delaying your Social Security claim beyond your full retirement age (FRA) can be a smart financial move. Each year you wait, your benefits increase by 8% until you age 70. (ref) If your FRA is 67 and you delay until 70, your monthly payments will be 24% higher than if you had claimed at 67.
Moreover, these increased benefits are locked in for life and will grow with annual cost-of-living adjustments (COLAs).
Delaying can also provide a larger survivor benefit for your spouse if you pass away first.
Strategies for Maximizing Your Social Security Benefits
In addition to understanding the break-even point and considering factors like life expectancy and spousal benefits, there are several strategies you can employ to maximize your Social Security benefits:
- Work for at least 35 years: Your Social Security benefit is calculated based on your highest 35 years of earnings. (ref) If you work for fewer than 35 years, zeros will be factored into the calculation, lowering your benefit.
- Increase your earnings: Since your benefit is based on your earnings history, increasing your income can lead to higher Social Security payments in retirement.
- Claim spousal benefits: If you’re married and your spouse has a higher benefit than you, you may be eligible for spousal benefits, up to 50% of your spouse’s full retirement age benefit.
- Consider the “file and suspend” strategy: If you’re married and you and your spouse have reached full retirement age, one spouse can file for benefits and immediately suspend them. This allows the other spouse to claim spousal benefits while the suspended benefits continue to grow until age 70.
Employing these strategies and working with a financial advisor can help you develop a comprehensive plan to maximize your Social Security benefits and ensure a comfortable retirement.
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Nancy Maffia
Nancy received a bachelor’s in biology from Elmira College and a master’s degree in horticulture and communications from the University of Kentucky. Worked in plant taxonomy at the University of Florida and the L. H. Bailey Hortorium at Cornell University, and wrote and edited gardening books at Rodale Press in Emmaus, PA. Her interests are plant identification, gardening, hiking, and reading.