Forty years ago, the Social Security Administration designed a system of paying retirement benefits intended to ensure that no matter when you decided to claim the benefits, you’d get about the same amount if you lived to the average life expectancy. But there is now ample evidence that the system is outdated and you’re almost always better off waiting as long as possible to apply for Social Security.
Waiting until age 70 to collect instead of age 62 increases your total monthly payment by more than three-quarters, Forbes reported. That aligns with other studies showing similar financial benefits to waiting to collect.
Americans can claim Social Security retirement benefits as early as age 62. The current full retirement age is 67 years for people who turn 62 in 2023. Anyone born before 1956 has already reached full retirement age, according to the SSA.
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.
As Forbes noted, the actuarial data used to determine Social Security benefits were designed in 1983, based on that era’s average life expectancy. Since then, however, the average life expectancy has gone up, meaning that if you wait until FRA or later to collect a bigger payment, you’ll end up with a lot more money over the course of your retirement.
Also, interest rates were much higher in 1983 than they are now, so you receive less income from your investments than you did back then. Today, it makes sense to spend other assets to pay expenses while delaying Social Security benefits a few years to boost your monthly payment.
Here’s a look at four statistics proving the financial benefit of waiting until age 70 to collect:
- Delaying benefits to age 70 instead of 62 increases monthly benefits by 77% in inflation-adjusted terms, according to a new paper in the “Journal of Financial Planning” by Wade Pfau and Steve Parrish, as reported by Forbes.
- Claiming benefits as early as age 62 results in lifetime benefits that are about 30% less than what they’d be at full retirement age, GOBankingRates previously 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.
- 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 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.
- An analysis from Fidelity ran the numbers on a hypothetical situation involving a person with typical career earnings who turned 62 in 2022. If the person waits until age 67 to collect Social Security, they will receive about $2,000 a month. However, if they begin taking benefits at age 62, they will only receive $1,400 a month. If the person starts collecting at age 67 and lives until age 90, they will have received about $600,000 in Social Security benefits during the course of their retirement, spread over 23 years. If they started collecting at age 62, their total payout over 28 years would be about $470,400 — a difference of nearly $130,000. The difference would be even bigger if they waited until age 70 to collect.
Keep in mind that there are many factors to consider before deciding when to collect Social Security. In some cases you might be better off claiming benefits as early as age 62, such as if you have a medical condition that will greatly reduce your life expectancy, or if you have a lot of debt that needs to be paid off.
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