Even if you do a respectable job of saving for retirement, chances are, you'll still end up looking to Social Security to provide a nice chunk of your income. As such, it pays to be strategic when filing for benefits, to get the most money possible.
Now, there are several things you can do to score a higher monthly retirement benefit. For example, you can work on boosting your earnings during your working years, so you have a higher wage base factored into your benefit calculation. You can also be vigilant about reviewing your annual earnings statements from the Social Security Administration so that mistakes on your record don't slash your benefits needlessly. But if you really want to do a good job of boosting your benefits in retirement, the answer is simple: Wait as long as possible to file for them.
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When waiting pays off
Though your Social Security benefits are based on your earnings history, the age at which you file for them can cause them to go up, go down, or stay the same. If you file at full retirement age, or FRA, you'll get the exact monthly benefit your earnings record entitles you to. That age is either 66, 67, or 66 plus a certain number of months, depending on the year you were born.
Of course, you're allowed to file for Social Security well before FRA kicks in -- as early as age 62. But for each month you file early, you'll have your monthly benefits reduced.
On the other hand, if you delay benefits past FRA, you'll automatically increase them by 8% a year in the process. That boost will then remain in effect for the rest of your life. The only catch is that the delayed retirement credits you'll accrue by filing for benefits after FRA will stop accumulating once you turn 70. So the maximum boost you can snag on your benefits is 24% if you have an FRA of 67, or 32% if your FRA is 66. But that's certainly nothing to scoff at.
Here's how that increase in benefits might play out. Imagine you're entitled to a $1,500 monthly benefit at an FRA of 67. If you wait until age 70 to file, you'll get to collect $1,860 a month instead. Now keep in mind that you wouldn't actually come out ahead financially right away in that scenario, because in delaying benefits, you'd end up losing out on three years of payments. You'd need to wait until age 82-1/2 to break even -- meaning, to wind up with the same amount of money whether you filed at 67 or at 70. But for each month you live past 82 1/2, you'd come out a winner.
For example, if you live until age 85, filing for benefits at 70 instead of 67 would give you about $11,000 more in lifetime Social Security income. If you live until age 90, as one in four seniors are expected to do these days, you'd collect $32,400 more. Therefore, if your health is in reasonably good shape, and you're not desperate for that income sooner, it pays to delay Social Security as much as you can and boost your benefits in the process.
Now you may be thinking: "Why don't I just file for benefits earlier and invest that money?" And that's not necessarily a terrible idea if you're a seasoned investor who's willing to put in the time. But remember, the 8% boost you'll get by delaying benefits is guaranteed, whereas stock market returns are not, so while the latter might be higher than 8%, especially during a good year, it also might be much lower. You might even lose money by taking benefits earlier and investing them. So the decision should largely boil down to whether you really want to take that risk.
Delaying benefits past full retirement age is a great way to boost your monthly Social Security income for life. If you're going to go that route, however, be sure to apply for benefits a few months before your 70th birthday, so that you can start collecting them as soon as you turn 70 -- there's absolutely no financial incentive to wait on Social Security past that point.
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