The debate about when to start collecting Social Security retirement benefits typically centers on the advantages of waiting as long as possible to ensure the highest check vs. collecting early to start putting your money to work. If you need evidence of why you should delay, there’s this: A new study has found that waiting until you are 70 years old could boost your finances by more than $182,000.
Just about all American workers ages 45 to 62 should wait beyond age 65 to collect their benefits, Barron’s reported — and more than 90% should hold off until age 70. That’s the conclusion of a study conducted by David Altig of the Federal Reserve Bank of Atlanta, Laurence Kotlikoff of Boston University and Victor Yifan Ye, a research scientist at Opendoor Technologies.
The study was based on data from the Federal Reserve’s 2019 Survey of Consumer Finances along with a Social Security maximization tool developed by Economic Security Planning, where Kotlikoff serves as president. Waiting until age 70 to claim Social Security would boost recipients’ lifetime discretionary spending by a median $182,370 in today’s dollars, according to the study.
As the Social Security Administration notes on its website, you can sign up for Social Security retirement benefits as early as age 62, but your benefits will be reduced if you start collecting before full retirement age, or FRA. The FRA is when you can start receiving your full benefit amount.
The full retirement age is 66 if you were born from 1943 to 1954. That increases gradually if you were born from 1955 to 1960, until it reaches age 67. For anyone born 1960 or later, full retirement benefits are payable at 67. You can find your full retirement age by birth year in the full retirement age chart.
When you delay benefits beyond your FRA, the amount of your benefit will continue to increase up until age 70. There’s no more financial incentive to delay claiming past age 70.
Claiming benefits as early as age 62 results in lifetime benefits that are about 30% less than what they’d be at FRA, Barron’s reported. Claiming at full retirement age gives you 100% of your earned benefit, while waiting until age 70 gives you 124% of what you’d get at full retirement age.
Despite what you might have heard, you don’t necessarily need to live an unusually long life to benefit from claiming benefits at 70. Assuming a lifespan of 85 years, nearly three-quarters of people ages 45 to 62 would receive their maximum benefit by waiting until age 70, according to the study.
Yet less than 10% of beneficiaries wait until at least age 70 to claim their Social Security retirement benefits, according to SSA data. The reasons are many and varied. Some need the money early to pay expenses, others worry about Social Security running out of money, while some don’t think they will live long enough to justify waiting.
Kotlikoff told Barron’s that people with the financial resources to do so should consider withdrawing from their retirement accounts if it lets them postpone claiming Social Security benefits. They should also consider the possibility that they will outlive their retirement savings, meaning that in their later years the bigger Social Security check will play an important role in their financial security.
Even taking on a part-time job in retirement to delay claiming could be a smart strategy.
“People should … maximize what for many is their biggest asset in retirement,” Kotlikoff said.
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