One of the biggest retirement decisions you might have to make is figuring out what age to sign up for Social Security. Although your monthly benefit will be calculated based on your personal earnings history, your filing age will also carry out how much money you get out of the program each month.
You’re entitled to your complete monthly benefit based on your wage history once you achieve full retirement age (FRA). That age hinges on your year of birth, but for anyone born in 1960 or later, it’s 67.
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Meanwhile, you’re allowed to sign up for Social Security as early as age 62. But for each month you file prior to FRA, your monthly benefit gets permanently reduced.
On the flipside, for each month you delay your Social Security claim past FRA, your monthly benefit gets a boost. And you can continue to postpone your filing and boost that benefit until you achieve the age of 70. Beyond that, there’s really no sense in delaying your claim, even though you technically won’t be forced to sign up once your 70th birthday arrives.
You may be tempted to file for Social Security at age 70 to score the highest possible monthly benefit. But doing so carries a risk.
If you don’t end up living very long, you might lose out on lifetime income from Social Security by delaying your filing that long. However, if you think you’ll live beyond age 82 1/2, then it pays to consider signing up for Social Security at 70.
Going beyond your break-even point
When you’re deciding between two different Social Security filing ages, it’s important to compute your break-even point. And in the battle of age 67 versus 70, you should know that your break-even point is age 82 1/2.
Let’s say you’re eligible for a monthly Social Security benefit of $2,000 at an FRA of 67. Waiting until age 70 to sign up will boost that benefit to $2,480.
At age 82 1/2, you’ll end up with $372,000 in lifetime Social Security income whether you file at 67 versus 70. And recall, the reason is because claiming at age 67 gives you access to 36 more months’ worth of benefits at that point, whereas claiming at 70 gives you fewer individual payments, but higher payments.
Now in the absence of a crystal ball, you clearly can’t anticipate exactly how long you’ll live. But let’s say you’re nearing age 67 and are in excellent health. Let’s also say your parents are still alive in their 90s, and their parents lived into their 90s, too.
If that’s the case, then figuring you’ll live past the age of 82 1/2 may be a fair assumption. And if so, then filing for Social Security at age 70 could be your best bet, as it might allow for a higher amount of lifetime income.
In fact, based on the above example, if you sign up for Social Security at 70 but live until 83, your delayed filing will result in an extra $2,880 of lifetime income compared to signing up at 67. If you live until 85, it’ll mean an extra $14,400 from Social Security in your lifetime. And if you live until 97, it’ll mean an additional $83,520.
Look at the big picture
There’s of course a flipside to this argument. If you don’t expect to live a very long life, then delaying your Social Security filing probably isn’t a good idea. In that situation, you may, in fact, want to claim benefits as early as possible.
But either way, if you’re not sure when to file, don’t just consider the monthly payday from Social Security your decision will result in. Also keep the big picture in mind, and focus on lifetime income when making your choice.
