Delaying Social Security Until 70? Why You Could Lose Out on Income | Smart Change: Personal Finance

(Christy Bieber)

When you’re trying to decide on the right age to claim Social Security, chances are good that you’ll see a lot of experts advising you to wait until 70 to start your benefits. And this advice has merit, as most people end up a little better off by waiting.

But, putting off your benefits claim for so long isn’t always the right approach. In fact, it could cost you thousands of dollars in missed income. You don’t want to lose out, so it’s crucial you understand when a delay is likely to leave you with less and how to make the best claiming choice for your situation.

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Could delaying your Social Security claim until 70 cost you a fortune?

You can claim Social Security retirement benefits as soon as you turn 62. However, if you want the largest monthly payment possible, you’re going to have to wait until 70. The amount of each monthly payment goes up for each year you’re eligible for benefits but don’t receive them. This increase happens either because you don’t get hit with early filing penalties that reduce your standard benefit or because you earn delayed retirement credits that increase it.

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In order to get that higher check, though, you have to forfeit some payments entirely. If you’re eligible for benefits at 62 but don’t get them until 63, you miss 12 whole checks. And if you wait all the way until the age of 70, you’ll forgo eight years of payments that could have been deposited into your bank account. That’s 96 payments you won’t receive that could have come your way.

Whether or not the delay ends up costing you money because of those 96 missed payments — or leaving you better off due to higher payments later — is going to depend on how long you live. You must live long enough for the extra money you get after finally hitting 70 to entirely make up for all 96 payments you didn’t receive. If you do that, you’ll break even. And if you live even longer and continue getting benefit checks going forward, you’ll end up with more lifetime benefits.

If you die before you break even, though, you’ll miss out on some Social Security income that could have been yours. And the amount you miss could be substantial.

How much could claiming at 70 cost you?

To figure out how much money you could potentially lose due to a delayed Social Security claimcalculate how much total income you miss out on by putting off filing for benefits.

Say that you were on track for the average $1,657 monthly benefit. You would receive this amount only at your full retirement age (FRA) which is between 66 and four months and 67. If your FRA was 67 and you got your first payment at 62, five years of early filing penalties would end up reducing your monthly income to $1,160 each month.

If you started your payments right at 62 despite this benefit cut, the 96 checks that would come between 62 and 70 would total $111,360. So you could potentially lose that entire amount if you passed away right at your 70th birthday before getting a single Social Security check.

Your delay until age 70 would entitle you to avoid early filing penalties and earn three years of delayed retirement credits, though. This would leave you with a monthly benefit of around $2,055 — about $895 more than the payments you’d have received by starting at 62. In order for this extra $895 per month to make up for the $111,360 that you missed, you’d need to live just over 10 years. If you passed away before then, you’d end up worse off for having waited.

It’s important to take this missed income into account when deciding if you want to put off a Social Security claim rather than just assuming waiting until 70 is best simply because bigger checks come then.

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