Deciding when to claim Social Security benefits is one of the most significant financial decisions you’ll make as you approach retirement. Many experts advocate waiting until age 70 to start collecting Social Security, especially if you aim to secure a larger monthly payment.
This strategy allows you to maximize your retirement benefits and even offers some tax-planning advantages for wealthier households. However, delaying your claim until 70 isn’t always the best choice for everyone. Let’s look into the pros and cons to help you make an informed decision.
Health
One of the primary considerations when deciding whether to delay Social Security benefits until age 70 is your health. While waiting until 70 can result in higher lifetime benefits for those in excellent health, there’s always the risk that you might not live long enough to fully benefit from this strategy. Those in average or better health typically gain more from waiting, but if your health is declining, you may want to start receiving benefits earlier to make the most of your retirement years.
Spousal
Another critical factor is the impact on spousal benefits. Depending on your circumstances, filing for Social Security earlier might allow you and your spouse to maximize your combined lifetime benefits. Spousal benefits can be worth up to half of what your spouse would receive at their full retirement age (FRA), and these benefits max out when you reach your own FRA. In some cases, it might be more advantageous for the lower-earning spouse to claim benefits earlier while the higher-earning spouse delays until 70, thereby optimizing survivor benefits.
Tax Planning
For wealthier households, delaying Social Security benefits can provide additional tax-planning opportunities. By postponing Social Security, you may have more control over your taxable income in your 60s, allowing you to take advantage of lower tax rates on withdrawals from retirement accounts. However, this strategy might not be suitable for everyone, particularly if your financial situation doesn’t allow for the delay.
Heirs
If leaving a legacy is important to you, consider how your decision to delay Social Security might affect your heirs. Unlike your retirement investments, which can be passed down to your heirs, Social Security benefits are not transferable. By delaying Social Security and relying on your investment portfolio to cover expenses in your 60s, you might reduce the amount you can leave behind. This is an important consideration, especially if preserving wealth for the next generation is a priority.
Investor’s Approach
Some retirees take an aggressive approach by claiming Social Security earlier and using the benefits to reduce withdrawals from their investment portfolios. This strategy can work well if the stock market performs favorably, potentially leaving you with a larger nest egg compared to waiting for higher Social Security benefits.
However, it’s essential to understand the risks involved. The stock market can be unpredictable, and a poor sequence of returns could leave you with less money overall, impacting both your financial security and your heirs’ inheritance.
Medicare
When you stop working and enroll in Medicare, your Part B premiums are typically deducted from your Social Security check. However, if you delay claiming Social Security, you’ll need to pay these premiums out of pocket. While this might not be a significant financial burden, it’s a factor worth considering. Whether you pay these premiums directly or have them deducted from a smaller Social Security check, you’re still paying for Medicare coverage either way.
In conclusion, deciding when to claim Social Security benefits is a personal choice that depends on various factors, including your health, financial needs, and retirement goals. While waiting until age 70 can offer a higher monthly payment and potential tax advantages, it’s not without its drawbacks. Careful consideration of your overall financial situation, including spousal benefits, tax planning, and your heirs’ inheritance, can help you make the best decision for your retirement.
FAQs
Is delaying Social Security until age 70 always the best option?
No, it depends on health, financial needs, and retirement goals.
How does delaying Social Security affect spousal benefits?
Delaying may optimize survivor benefits but requires careful planning.
What are the tax advantages of delaying Social Security?
Delaying can offer tax-planning benefits for wealthier households.
Can I pass down Social Security benefits to my heirs?
No, Social Security benefits are not transferable to heirs.
How does delaying Social Security affect Medicare premiums?
You’ll need to pay Medicare premiums out of pocket if you delay.
