There's a good chance you'll end up being eligible for Social Security benefits in retirement. And once the tail end of your career nears, you'll need to start thinking about when to sign up for benefits.
The earliest age to claim Social Security is 62. But that's considered an early filing because you're not eligible for your complete monthly benefit based on your personal wage history until full retirement age (FRA) arrives. That age is either 66, 67, or somewhere in the middle, based on your year of birth.
Because 62 is the soonest you can claim Social Security, you may be inclined to file for benefits then. But rather than file as early as possible, you might actually want to file as late as possible, instead.
It pays to wait
There's technically no such thing as a "final" age to sign up for Social Security. Once you reach 62, any filing age is allowed and acceptable.
But once you reach the age of 70, there's no financial benefit to delaying your filing. So 70 is generally considered the latest age at which to claim benefits, even though you can sign up at 72, 75, or 85, for that matter.
For each year you delay your Social Security filing beyond FRA, your monthly benefit will grow by 8%. Compare that to filing early, which slashes your monthly benefit, and it's easy to see why 70 is a better choice than 62.
Let's say you're eligible for $2,000 a month from Social Security at an FRA of 67. Filing at age 62 will give you $1,400 a month, instead, whereas claiming benefits at age 70 will give you $2,480. That's a difference of almost $13,000 in annual income.
Just as importantly, once you lock in a higher Social Security benefit from a delayed filing, you'll get to enjoy that increase for life. That's important because some people come into retirement with decent savings, only to deplete their nest eggs due to unforeseen circumstances. A higher Social Security benefit could result in a lot less stress if you find that you end up spending down your nest egg at a faster pace than expected.
Remember, too, that even if you withdraw your from IRA or 401(k) plan at a relatively conservative rate, market conditions could leave you with less savings than anticipated, due to your investments losing value. The great thing about Social Security is that benefits have nothing to do with the stock market's performance. If you lock in a higher monthly benefit by virtue of waiting to file, that benefit will be yours to enjoy, even during periods of market volatility, and even at times when the U.S. economy winds up in a slump.
A smart move for your future
It's easy to see why so many seniors are tempted to claim Social Security early. But rather than aim to file at the earliest age you can, consider doing the opposite. It could leave you in a much stronger financial position for the entirety of your retirement.
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