Patience is a virtue, and many financial advisors suggest having some when it comes to collecting your Social Security benefits. They often recommend waiting to take Social Security until age 70.
There are some very good reasons to consider taking Social Security as late as possible, and certainly later than age 62, the earliest you can start collecting Social Security payments. Let’s look at the reasons.
[READ: How Much You Will Get From Social Security.]
You’ll Get More Money
While you can start taking Social Security at 62, you won’t receive the full benefit you have earned unless you wait until your full retirement age to sign up. For each year you delay claiming Social Security past your full retirement age, your benefits grow by 8%. After age 70, there are no further increases for delaying your benefit.
“By waiting until you’re 70 to start drawing on Social Security, you’re essentially opting for the highest possible monthly payout for the rest of your life, says Khwan Hathai, a certified financial therapist based in Denver and the founder of Epiphany Financial Therapy. “It’s like giving yourself a raise just by waiting.”
Bob Wood, who teaches a personal finance course at the University of South Alabama, says he could have started receiving Social Security several years ago but decided to delay receiving benefits until he turns 70.
The 8% yearly increase in payments is the reason. “I know of no guaranteed investments that promise an 8% increase each year,” Wood says.
Bill Waggoner, president and chief compliance officer at Stoney Creek Advisors LLC in Rochester Hills, Michigan, suggests you do the math with an online calculator.
“There are many online calculators that can help determine the amount you will receive at various ages, but I always recommend my clients go to www.ssa.gov and open an account to see the government’s estimate of what you will receive at different ages,” Waggoner says. “You should also receive an annual statement from the government updating the amounts annually.”
Having that information will help you make an informed decision, Waggoner says, adding: “You can also consult an expert in Social Security planning before you make your decision to help create and adjust a robust strategy that works best for you.”
[See: 10 Ways to Increase Your Social Security Payments.]
You Might Pay Less in Taxes
Generally, you’re going to pay taxes on your Social Security benefits. According to the Social Security Administration’s website, you have to pay taxes on your Social Security benefits, possibly on up to 85% of them, if you file a federal tax return as an individual and your combined income exceeds $34,000, or if you file a joint return, and you and your spouse have combined income of more than $44,000.
But 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,” says Aviva Pinto, managing director at Wealthspire Advisors in New York City.
You May Feel Better
This depends on your financial situation, of course. If waiting to claim Social Security will create a financial hardship, you may not feel better at all. But Hathai points out that “from a money mindset perspective, delaying to 70 can create a sense of empowerment and security,” she says. “There’s something inherently comforting about knowing you’ve maximized a guaranteed income stream.”
She adds: “It’s one less thing to worry about when you’re figuring out how to live your best life in retirement.”
[How Income Annuities Can Buy You Time Until Social Security Kicks In]
Reasons Not to Delay Payments Until Age 70
Waiting to collect Social Security benefits often pays off in the long run, but there are are a couple of reasons to start payments earlier.
You May Not Envision a Long Life
Not everyone lives into their 90s and beyond. And not everyone makes it to 70.
“Life is unpredictable,” Hathai says. “Health can deteriorate, and personal circumstances can change. If you or your partner face health challenges, the additional money you gain from waiting may not provide the value you once thought it would. There’s a very real emotional cost to consider here, especially if you feel restricted during what are supposed to be your freedom years.”
You Can’t Make the Math Work Before You Turn 70
Depending on your financial picture, you may not have the luxury of waiting until age 70 for a larger payout. Maybe you’re retiring at age 67, and you can’t go the next three years without collecting your Social Security benefits.
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Reasons to Take Social Security Late at Age 70 originally appeared on usnews.com
Update 09/13/23: This story was published at an earlier date and has been updated with new information.
