Some people believe in starting to collect Social Security as early as possible, which is generally at age 62.
“Live while it is yet possible to live!” the early birds cry. “After all, I could die tomorrow, and then the government will keep my money.”
What’s more likely is that you’ll live a lot longer than 62.
According to the Social Security Administration (SSA), the average woman reaching the age of 65 today will live until 86.7. The average man who is 65 today can expect to live until 84.3.
One way to help ensure you don’t run out of money before then is to postpone claiming your Social Security retirement benefits. There are advantages to waiting as late as 70 years old.
While waiting until 70 isn’t for everyone, following are some reasons that claiming sooner than later can be a bad idea.
1. Claiming early reduces your benefit
Some people think that taking Social Security at age 62 means more money overall. That’s not necessarily true.
The amount of your monthly benefit is based on a formula that’s meant to be actuarially neutral. That basically means you should get the same total amount of benefits over the course of your retirement regardless of the age at which you first claim benefits.
Your monthly benefit will be reduced if you claim before reaching what the SSA calls your “full retirement age,” which depends on the year you were born.
If you delay claiming until after your full retirement age, you will receive an even bigger monthly benefit once you do claim. For every year you hold off past full retirement age, your benefit will jump by as much as 8 percent.
Let’s say your full retirement age is 67, and your benefit would be $2,000 per month if you claimed at full retirement age. Waiting until 70 would give you a monthly benefit of around $2,480. That’s an extra $5,760 a year — every year.
The SSA’s “Quick Calculator” can give you a rough idea of your own benefit amount based on when you plan to retire.
A custom analysis of your claiming options, offered by specialized companies like Social Security Choices, can further help you determine when is the best time for you to claim your benefits.
As he details in the video below, Money Talks News founder Stacy Johnson himself got an analysis from Social Security Choices. To learn more about it — including how to land a discount on the cost of your report — check out “Maximize Your Social Security.”
2. You might outlive your other retirement income
If there’s a chance that you could use up your retirement funds before you die, a higher Social Security benefit could be crucial.
That Social Security check of $2,480 per month might be hard to live on, especially if you don’t have a partner who is also receiving benefits. But it sure beats trying to make ends meet on $2,000 per month.
3. Working longer can increase your benefit
Your monthly benefit amount is based on the amount of income you earned during each of your 35 highest-earning working years. However, not everyone is able or willing to work for 35 years, often due to health or family issues.
When that’s the case, the government will substitute zeroes for the missing years in its calculation, which can significantly lower your monthly benefit amount.
Low-earning years also bring down the total, says Emily Guy Birken, author of “Making Social Security Work for You.”
As tempting as early retirement can be, think big-picture and look for ways to bring in more bucks before claiming.
“Anything you can do to replace those zeroes and anything you can do to replace those low-earning years will help beef up your retirement,” Birken tells Money Talks News.