Delay Social Security or Claim Now? How High Interest Rates Now Affect Choice
Written by
Cynthia Measom
Edited by
Brendan McGinley
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The decision to whether to start or delay claiming Social Security is a big one. It can mean the difference between a smaller monthly check now or a larger one later.
People usually make that call based on factors like whether they have health insurance and how much income they need right away. However, today’s higher interest rates also matter if you have substantial savings. With that in mind, let’s take a look at the biggest factors facing potential Social Security recipients today.
How Your Claiming Age Changes Monthly Benefits
Although full retirement age is between 66 or 67, you can claim Social Security starting at age 62 or as late as age 70. Claiming at 62 permanently reduces benefits by about 30%. Waiting until age 70 increases benefits by about 8% per year — 24% total — through delayed retirement credits.
For example, under the Social Security Administration’s claiming rules, a $2,000 monthly benefit at full retirement age would only be $1,400 at 62 but $2,480 at 70.
How Higher Interest Rates Factor Into Claiming
In April 2021, the national average savings rate was 0.06% according to the FDIC. Today, the national average savings rate is over six times higher at 0.39% and some high-yield savings accounts pay around 4%.
Higher interest rates do not replace Social Security income. However, they can reduce how much someone needs to withdraw from savings while delaying Social Security benefits. When savings earn more, balances can last longer. Waiting to claim Social Security is more realistic for people with substantial savings.
For example, $250,000 in savings earns about $1,500 per year at 0.6% but about $10,000 at 4%. If someone withdraws about $40,000 per year from savings while delaying Social Security, earning a higher interest rate can help replace what is spent.
However, if savings are limited and income is needed now, higher interest rates don’t matter and claiming now likely makes more sense. You can play around with your numbers and get a stronger sense of your retirement age on the Social Security Administration’s calculators.
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