Should you wait to claim Social Security benefits?

It’s possible to start collecting Social Security benefits as soon as you hit 62, though you technically have up until age 70 to do so. Still, more Americans are taking their benefits sooner than later — even though experts say there’s a big advantage to waiting.

“A majority of new retirees claim benefits before age 65,” said CNBC, citing research from the Alliance for Lifetime Income. However, it’s not until you hit “full retirement age — generally age 66 or 67, depending on an individual’s birth year” — that you’d get 100% of the benefits you’d earn. Further, said CNBC, “for each year you wait past full retirement age up to 70, you may receive an 8% benefit boost.”

This means that for many people, it’s worth the wait. That said, waiting to collect isn’t the right move for everyone.

What are the benefits of waiting to take Social Security?

As mentioned, there are some major upsides to holding off on collecting Social Security:

• Larger monthly payouts: The longer you wait to collect benefits, the larger your monthly checks may be. “A 70-year-old claiming Social Security this year can collect a maximum of $4,873 a month, while a 67-year-old can collect a maximum of $3,822 — an annual difference of about $12,600,” said The Wall Street Journal.
• Greater survivor benefits: “Claiming later doesn’t just increase your benefit in life — it could provide your spouse with a bigger payment, and greater financial security, after you’re gone,” said AARP. That’s because “when one spouse dies, the other may become eligible to receive the deceased’s entire Social Security payment if it exceeds their own.”
• Potentially lower taxes: You generally have to pay taxes on your Social Security benefits. As such, “if you delay accepting your Social Security benefits and you’re retired by age 70, you may be in lower tax bracket, ‘which will lessen the amount of taxes you will have to pay on your Social Security benefits,'” said Aviva Pinto, managing director at Wealthspire Advisors, in an interview with U.S. News & World Report.

When does it make sense to claim benefits earlier?

While those benefits may sound enticing, waiting to claim benefits does not make sense in every case. In fact, in the following situations, it may make sense to claim benefits closer to age 62:

• You need the additional cash flow now. “Many Americans claim their Social Security benefits early for a simple reason: They need the money to cover their everyday living expenses,” said Investopedia.
• You do not anticipate having a long retirement. This could be due to poor health or a chronic medical condition. But, in general, “if you don’t expect to live long enough to profit from delaying your benefits, your wisest course may be to take them sooner rather than later,” said Investopedia.
• You want to increase household benefits. In some cases, said NerdWallet, you may have “dependent children or an eligible spouse who may receive a monthly benefit of up to one-half of your full retirement amount, but they cannot begin receiving these benefits until you begin receiving your own retirement payment.”

How should you determine the best age to take Social Security for you?

A big number to know when determining what age to take Social Security is known as the breakeven point. Since “waiting to receive bigger benefits also means receiving fewer payments over the course of your life,” said NerdWallet, it’s “important to find the age at which the cumulative amount of money you may receive if you file later equals the cumulative amount of money you may receive if you file early” — aka your breakeven point.

There are online calculators and financial professionals that can help you do the math, but “for many people, the breakeven point is around 12 and ½ years after age 70 or full retirement age,” said CNBC Select.

However, while a breakeven analysis can provide some basic guidance, it won’t necessarily tell the full story. “Before you decide to collect Social Security based on your breakeven point, you should also consider how collecting early or delaying could impact the benefit your spouse receives,” said CNBC Select, alongside considerations like your current health and expected longevity, your health insurance coverage, and the state of the economy.