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What is the best age to take Social Security? This is what the data shows.

If your goal is to maximize your Social Security benefits in retirement, prepare to wait a little bit longer.

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Anita Chauhan
October 25, 2022
Blog overview

Three reasons you should wait to take Social Security:

1. Higher benefits - you could add an extra 8% a year by deferring your Social Security payments after your FRA.

2. Income later in life - waiting will ensure you receive the benefits you need for the rest of your life.

3. Lower taxes- Social Security is taxed less in retirement compared to other sources of retirement income.

Are you planning for your retirement? One of the biggest choices you may need to make is at what age you should tap into your Social Security benefits. Deciding whether or not to hold off on claiming your benefits until you are 62 vs 65 vs 70 will depend on your financial situation.

If your goal is to maximize your Social Security income, the magic number you’re looking for is 70.

Why wait until 70?

While many people begin to claim their Social Security retirement benefits at 62 or later at 66 or 67, choosing to defer your benefits until 70 can seem daunting. It could mean a few more years in a job or pushing off that long-awaited retirement.

But the truth is, not tapping into your social security until age 70 does not mean you will have to work until you’re 70. If you can manage retirement on other sources of income, waiting will result in a higher benefit which could improve your quality of life. The bottom line is: the longer the wait, the larger the benefits — if you can hold out.

Here are a few reasons why deferring your benefits until 70 could be a good decision.

1. Your social security check will be larger

You could lose up to 25 - 30% of your benefits if you decide to claim your Social Security before reaching full retirement age (FRA). Your FRA will differ depending on your birth year. Use this tool created by the Social Security Administration to determine your FRA.

If you decide to wait even longer, you will truly maximize your retirement income and receive full benefits from Social Security. For every year beyond your FRA until 70, you will receive an 8% delayed retirement credit. In this case, someone with an FRA of 66 could grow their own benefits by up to 36%!

If you’re wondering if waiting until 70 will increase spousal benefits as well, we have some disappointing news. In short, the answer is no. Spousal benefits do increase if you wait but top out once you reach your FRA.

In summary, you could add an extra 8% a year by deferring your Social Security payments after your FRA. This is a healthy amount that could make a difference in your quality of life. It is also typically more interest than you can expect to receive on many fixed financial products currently in the market, including the government-provided cost of living adjustments (COLAs). These COLAs have been provided to Social Security beneficiaries for the past decade, typically averaging around 1.5% yearly. The COLAs, while helpful, add significantly less to your monthly benefit than a deferment will and do not keep pace with current inflation increases.

If you take COLA for Social Security, you may find it combined with a Medicare premium increase.

2. Life expectancy can impact your choices

There are many factors to consider in retirement planning. One of the biggest ones of late is life expectancy. While no one can predict how long they will live, according to the CDC, US citizens who live to age 65 will live another 19 years on average! With those averages, and Americans living longer than before, some readjustments must be made to conventional retirement wisdom to ensure you receive the benefits you need for the rest of your life.

By waiting until you are 70 to claim your Social Security benefits, you can expect more money to help you in old age. The math is simple: if your benefits at 70 total are 75% greater than your benefits at 62, you will have much more to live off of.

Please note: if you’re married, and you or your partner passes, the lower Social Security payment will go away. Suppose the spouse with the larger Social Security wage history holds off as long as possible to claim benefits. In that case, they’ll leave a more significant payout for the surviving spouse to live on. Keep in mind, you cannot claim a survivor benefit and your Social Security benefit - you can only have the higher of the two.

Since many Baby Boomers lack a trusted employee pension to use in retirement, maximizing Social Security as a reliable income stream may be the best option.

3. More savings, fewer taxes

It may come as a surprise, but did you know that you may end up paying federal income taxes on nearly 85% of your Social Security benefits?

It’s true. Here’s how it works.

For an individual with a “provisional income” between $25,000-$34,000, up to 50% of their benefits may be taxed as earned income. Suppose your provisional income totals more than $34,000. In that case, you may pay federal taxes on up to 85% of your benefits.

Determining your “provisional income” is easy: it’s half of your Social Security benefit amount + adjusted gross income + non-taxable interest.

Things are a bit different if you’re not filing as an individual but with a partner or a spouse. If you and your spouse have a combined provisional income between $32k - 44k and choose to file a joint return, up to 50% of your benefits may be taxed. If your joint provisional income totals more than $44,000, 85% of your benefits could be taxed.

Those who have little to no taxable income in retirement may be able to avoid paying federal taxes on their Social Security benefits. For those entering retirement age, if you have a good amount of your retirement savings in either tax-deferred IRAs or 401(k)s, you could be saving a hefty amount on federal income taxes yearly. These savings could be substantial, especially if you are a Baby Boomer on a fixed income.

When you claim your Social Security benefits

Everyone’s financial situations are different. There is no clear-cut answer when it comes to planning for retirement or understanding when you should be claiming Social Security benefits.

If your financial situation allows for it, waiting until you are 70 to claim your benefits could be in your favor. This is not only for the extra income in the long run but for the savings on taxable income.

For those who have already filed, you may be able to request a do-over. Applications can be withdrawn within up to 12 months following your filing and can be resubmitted later. Keep in mind that you only get one opportunity to resubmit. Those who request a do-over will have a chance to pay back their Social Security benefits.

Again, there is no clear-cut answer for when to claim your Social Security benefits. If it makes sense, waiting until you are 70 can make all the difference. If you are uncertain about which path to take, consider speaking with a financial professional. A professional can help you decide which Social Security claiming strategy is best for your personal goals and financial situation.

Disclaimer: Information in this article is general in nature and not meant to be taken as financial advice, legal advice or any other sort of professional guidance. While information in this article is intended to be accurate at the time of publishing, the complexity and evolving nature of these subjects can mean that information is incorrect or out of date, or it may not apply to your jurisdiction. Please consult with a qualified professional to discuss your specific situation and confirm any information.