One of the most important decisions you’ll make when planning for retirement is when to claim Social Security.
Many retirees wait to claim benefits until they reach full retirement age, which is when they are eligible to receive the full insurance amount each month. It also comes with some other benefits, such as the ability to continue working without affecting the size of your monthly check. Anyone born in 1960 or later will have full retirement age of 67.
But claiming Social Security at age 67 comes with some disadvantages that retirees should consider. Here is the unfortunate truth.
You are taking major risks
Delaying Social Security may work out better for retirees, on average, but that doesn’t mean it’s a risk-free decision. It is very possible that you will end up with worse than average luck.
Giving up Social Security checks for five years may require you to continue working longer or could simply force you to withdraw other retirement savings. There is a risk that you will lose your job or become unable to work. There is a risk that the market will perform poorly and you will use up more savings than anticipated.
There’s also the risk that you won’t live long enough to overcome the lost half-decade of Social Security checks. You can expect to receive more lifetime income from Social Security if you delay, but you should live about the average life expectancy of someone age 60 before you break even.
Finally, there is a risk that the Social Security trust reserves will be depleted during your lifetime, resulting in a cut in benefits. That could extend the amount of time it takes to break even compared to claiming benefits as soon as possible before any cuts occur.
You are giving up the potential to make a bigger profit.
On the other side of the coin, you have the opportunity to continue delaying Social Security until age 70 to collect a larger monthly benefit. Delaying three years from age 67 to age 70 will result in a 24% increase in your Social Security check.
It is worth noting that the increase in benefits after reaching full retirement age is faster than before reaching full retirement age. If you claim to be 67, you’re giving up the steepest part of the curve in benefit increases. And the wait is usually worth it.
On average, retirees are better off waiting until age 70 to claim benefits. That is the claiming age that provides the highest expected lifetime payout from the program. A 2019 study from United Income suggests that 57% of seniors should wait until age 70 to claim, while just over 10% would be better off claiming at age 67.
You could end up leaving your spouse with less
A big part of your claim decision should also consider your spouse, if you have one. Claiming at age 67 has a big disadvantage if you are the highest earner in your household. You could end up leaving your spouse with less.
Survivor benefits are a key part of the Social Security program. The benefit guarantees that a widow or widower can collect up to the same amount in Social Security as the spouse with the larger monthly check. (The benefit is reduced if you apply before reaching full retirement age.) That means if you apply at age 67, you could deny your spouse the ability to receive a 24% larger check for the rest of their life.
This joint survival consideration makes the expected value of waiting until age 70 even greater for some retirees. In extreme cases where you earned much more than your spouse and are a little older, you should do everything you can to delay benefits until age 70.
On the other hand, if you expect to receive survivor benefits at some point, it may make more sense to claim your personal retirement benefit well before age 67.
Just because full retirement age is one of the most popular ages to claim Social Security doesn’t mean it’s the best age for you. Make sure you understand the nuances and trade-offs of filing a claim at age 67 before deciding when you want to file.
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The Unfortunate Truth About Claiming Social Security at Age 67 was originally published by The Motley Fool