/Why It Pays to Put Off Social Security

Why It Pays to Put Off Social Security

Every individual’s Social Security benefits are calculated based on their highest 35 years’ worth of earnings.

While no one can change that formula, you can still affect the amount your monthly benefit ends up being. Here’s how.

Per Fox Business:

If you claim Social Security at full retirement age, or FRA, you’ll get the full monthly benefit your earnings history entitles you to. FRA is either 66, 67, or 66 and a specific number of months, depending on what year you were born. You can also claim benefits as early as age 62 – an option many seniors jump on each year. Though filing before FRA reduces your monthly benefit, you also get to claim it sooner.

But then there’s the option of going to the opposite extreme: claiming Social Security after FRA. For each year you delay your filing, your benefits go up 8%, up until you reach age 70. It’s for this reason that 70 is generally considered the latest age to sign up for Social Security.

Of course, the drawback of claiming benefits at 70 is obvious: You have to wait a really long time to collect your money, and if you don’t end up living a particularly long life, you could wind up with less Social Security income than you would by filing earlier. But in spite of that, it still pays to file for benefits at 70 for one big reason: It’s the easiest guaranteed way to boost your retirement income.

You’ll often hear that there’s no such thing as a risk-free investment, and that statement is true. Unless you house your retirement savings in cash, there’s no guarantee that you won’t lose money in your IRA or 401(k) through the years. After all, your stock investments in your retirement plan could sink in value during a market crash. You could buy bonds or bond funds that lose value despite their inherent stability. But if you delay Social Security past FRA, you’re effectively guaranteed an 8% return on those benefits each year in the form of a boost. And that’s an offer that’s pretty hard to beat.