Millions of seniors collect Social Security in retirement, and for a large number, those benefits spell the difference between staying afloat financially and teetering on the edge of poverty. Given the important role Social Security plays in so many seniors' lives, you'd think more people would be taking steps to secure the highest monthly benefit possible.
But in reality, only 3% of eligible recipients file for Social Security at age 70, which means that the overwhelming majority of beneficiaries aren't maximizing this critical source of income.
It matters when you file
Though your Social Security benefits are based on your 35 highest years of earnings, the amount you wind up with each month will depend on how old you are when you file for them. If you file for benefits at full retirement age, or FRA, you'll get the exact amount each month that your earnings history entitles you to. Here's what FRA might look like for you, based on when you were born:
Year of Birth
Full Retirement Age
66 and 2 months
66 and 4 months
66 and 6 months
66 and 8 months
66 and 10 months
DATA SOURCE: SOCIAL SECURITY ADMINISTRATION.
That said, you actually get an eight-year window to file for Social Security that begins at age 62 and ends at age 70. (Technically, you can file after you turn 70, but as we'll discuss in a minute, there's no reason to wait past that point.) Filing at 62 means getting your benefits early, but it also means reducing them substantially.
For example, if your FRA is 67 but you file at 62, your benefits will take a 30% hit. And unless you manage to withdraw your application shortly after starting to collect benefits, that reduced monthly payment is what you'll be stuck with for the rest of your life.
IMAGE SOURCE: GETTY IMAGES.
On the other hand, if you hold off on taking benefits past FRA, you'll accrue delayed retirement credits that boost your payments by 8% a year, up until age 70. Since you can't rack up those credits indefinitely, it makes sense to file for Social Security by your 70th birthday, because waiting even a day longer won't help you gain anything financially. Once you score that 8% boost, however, it will remain in effect for the rest of your life.
Here's how that might work to your advantage. Let's say you're entitled to a full monthly benefit of $1,600 at an FRA of 67. If you wait until 70 to file instead, you'll increase your full monthly benefit to $1,984. From that point on, you'll collect an extra $4,608 a year during retirement, which could come in handy for paying bills or even treating yourself to an extra vacation each year.
Don't jump the gun
A guaranteed 8% boost in benefits is a pretty neat incentive for waiting a few years to claim them. So why don't more people jump on that option? Partly because seniors are often forced to retire sooner than planned, thereby leaving them with no choice but to file for benefits as early as possible.
Furthermore, waiting until age 70 to claim Social Security isn't the smartest move if your health is poor because if you pass away at a younger age than the average senior, you'll end up collecting less money in benefits in your lifetime. Finally, many older Americans are concerned that Social Security is going bankrupt (it isn't), and therefore rush to claim benefits for fear that if they wait, they won't end up seeing a dime.
The first two are certainly valid reasons not to wait until 70 to file for benefits. The last one, though based on rumors, is somewhat understandable, as well. Either way, if you have the option to hold off on benefits for as long as possible, take it. It's a fail-safe way to boost what could easily end up being your greatest income stream for life, thereby setting the stage for a more financially secure retirement on the whole.
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