Social Security is one of your best income sources as a senior because you collect it for life, and there are inflation adjustments built in to help you maintain your buying power. Chances are good you’re going to rely on Social Security to cover at least some of your bills, and potentially to provide a good amount of your retirement income, depending on how much you’ve saved.
Since your retirement benefits are an important source of funds, it makes sense to be strategic about when you should claim your benefits. You can start them as soon as you turn 62, and many people opt to do that — or at least to start them soon after — because you can get your hands on the retirement benefits you have worked for all your life.
Surprisingly, though, 62 may actually not be the right time to start your checks. In fact, the best claiming age may be one that’s not on your radar.
Although you can start benefits when you’re just 62 years old, the reality is that a delayed Social Security claim is actually going to be the better bet for the majority of seniors. In fact, you don’t just want to delay until your full retirement age, which is 67 for anyone born in 1960 or later. Research has clearly shown that the best age for claiming Social Security is actually 70.
That’s based on a report from the National Bureau of Economic Research, which found that waiting until 70 is the right choice for over 90% of Americans. Of course, this means leaving eight full years of money on the table, so it may seem hard to believe this is the right move. The data is clear, though, with the NBER report showing the median loss in spending power totals $182,370 among those who claim earlier than the optimum age.
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So, why does it make sense to wait so long to claim Social Security benefits?
It’s simple: When Social Security was designed, a system of early filing penalties and delayed retirement credits was created to try to equalize out lifetime benefits while giving people a choice about when to claim them. The idea was that benefits would be reduced for early claims since they would receive more total checks during their lifetime. Late claimers would see benefits increase, so there was a payoff for waiting. Although late claimers would give up eight years of benefits, they’d get much more money when they eventually started receiving payments.
The system of penalties and credits is still in place, but life expectancies have gotten a lot longer. As a result, most people who wait until 70 to claim Social Security live long enough that they end up getting their higher benefit for many years. All the extra money usually adds up to more than the amount they gave up by waiting, so they get much more income over their lifetimes from Social Security.
Most people don’t really know or understand this, though, so they don’t make plans to delay their Social Security claim, and they leave money on the table — and a lot of it. The good thing is, becoming aware of it can help you to shape your Social Security claiming choices and your retirement planning process. If you’re working and preparing for your future, it’s worth a conversation with a financial advisor about how you can set yourself up to claim Social Security at 70 and maximize this important income source.
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