The Pros and Cons of Delaying Social Security Benefits Until Full Retirement Age
Deciding when to start receiving Social Security benefits is a complex and individual decision that depends on several factors, including your expected lifespan, financial situation, and work plans. The article below explores the pros and cons of delaying Social Security benefits until your full retirement age, commonly referred to as FRA.
Knowing Your Options at Full Retirement Age
The full retirement age can vary depending on the year you were born. For individuals born in 1960 or later, the full retirement age is 67. At this age, you can receive your maximum Social Security benefit, assuming you have paid into the system for a sufficient number of years.
By waiting until age 70, you can get the highest possible benefit, with each year of delay increasing your retirement benefit by approximately 8% until age 70. This is a considerable advantage, but it requires careful consideration of your health and financial situation.
Pros and Cons of Delaying Benefits
Pros of Waiting for Full Retirement Age
1. Increased Benefit: The most compelling reason to wait until full retirement age to claim Social Security benefits is the higher payout. Waiting until age 70 will result in the largest monthly benefit, providing significant financial security in retirement.
2. Continuous Work Capacity: Claiming benefits at full retirement age allows you to continue working and earning an income without the risk of benefit reduction due to employment. This is particularly beneficial if your job includes high earnings.
3. Maximized Fixed Income: Delaying benefits can create a stable financial stream for life, which is invaluable for individuals with fixed incomes. This can help in balancing expenses and maintaining a comfortable lifestyle.
Cons of Waiting for Full Retirement Age
1. Life Expectancy Risk: Despite the increased benefit amount, there is a risk that you might pass away before reaching the break-even point, meaning you would not have received the higher benefits. This gamble can be particularly challenging if you are in poor health.
2. Investment Opportunity Loss: Waiting to claim benefits means less money in your pocket earlier. If you choose to invest this money, you could potentially grow your savings over time, which is lost when you delay benefit collection.
3. Gaming Outcomes: While some argue that Social Security benefits will be reduced, the fear of this happening in the future is largely unfounded. As with many social welfare programs, the government adjusts benefits to ensure that they remain viable for current and future generations.
Personal Considerations and Strategy
When deciding whether to wait for full retirement age, consider your personal circumstances. If you are in good health, do not anticipate major expenses in the near future, and have substantial savings, delaying benefits can be a sound financial strategy.
For instance, if you and your spouse are both waiting until age 70, it is a risky gamble, especially if you have a family history of early death. In such cases, the potential loss of the increased benefit check could mean a smaller remaining investment portfolio, which could impact your retirement savings.
On the other hand, for those with ample financial cushion and a long life expectancy, maximizing the Social Security benefit by waiting until full retirement age can provide a more secure financial future.
Conclusion
Delaying Social Security benefits until full retirement age is a strategic choice that requires a thorough understanding of your financial situation and life expectancy. While it offers significant benefits, such as increased monthly payments and the ability to work without reduced benefits, it also entails risks, such as the possibility of passing away before reaching the break-even point.
Your decision should be based on a detailed financial plan and consultation with financial advisor to ensure that the strategy aligns with your long-term goals and lifestyle.