Collecting Social Security at age 70 is the holy grail of retirement planning. It’s the milestone that financial planners and wealth advisors urge you to strive for if you want the biggest paycheck possible.
Yet, claiming Social Security at 70 isn’t that popular. According to Social Security Administration data, only around 10% of recipients actually wait until that age to collect. For some, health issues get in the way of waiting. Others don’t trust that the system will remain solvent. Others need the money now, or prefer to spend it while they are young enough to enjoy it.
Either way, the vast majority of Americans choose to take their benefits long before age 70. (If you are thinking about joining them, check out five reasons why you should and shouldn’t take Social Security benefits at 62).
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Is taking benefits at 70 a mistake? It depends. There is a strong case to be made for waiting until 70, but there are equally compelling reasons to claim earlier. With that in mind, here are five reasons to hold out until 70 and five reasons to take the money and run.
5 reasons to wait until 70 to collect Social Security
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1. You’ll receive the highest monthly payout possible.
Each year you delay collecting Social Security benefits after your retirement age, which for people born in 1960 and beyond is 67, you’ll receive a roughly 8% increase in your payment. After age 70, that extra 8% bump goes away. But by holding out for just those three years between 67 and 70, your permanent monthly benefit increases by 24%.
2. You’ll have a larger cost-of-living-adjustment (COLA).
One of the perks of Social Security is that it is adjusted for inflation each year, as a percentage, which means the bigger your monthly benefit, the higher your COLA will be. If you wait until 70 for the highest check possible, every future COLA percentage is multiplied against a much larger number than if you collected benefits earlier. A 3% inflation increase on a $3,000 monthly check is $90. A COLA of 3% on an $ 1,800-a-month check is $54. Waiting gives you more inflation protection.
3. You can replace your lowest-earning years.
Your Social Security benefits are calculated based on the 35 highest-earning years, adjusted for inflation. During the later years of a career, people tend to be in their peak earnings period. If you choose to work until 70 and are earning top dollar, you can bump out older, lower-paying years, effectively increasing your baseline benefit. That means a bigger check when you retire and begin collecting Social Security.
4. Increased survivor benefits.
Since you are waiting until 70, you’ll have a bigger monthly payment, which means that if you were to pass away first, your surviving spouse can receive a bigger monthly benefit for the rest of their life.
5. Long-term longevity insurance.
Outliving your savings is a fear many retirees have. But if you work until 70, and collect a bigger Social Security check, that concern diminishes, at least a little bit. After all, you’re bringing in income for longer, saving for more time and building a larger Social Security payout. The latter of which provides permanent protection against outliving your other savings and investments.
5 reasons why you should take Social Security earlier than 70
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1. You have health and longevity concerns.
If you have health issues or longevity concerns and you don’t think you are going to make it to 70, it doesn’t make sense to wait to collect Social Security. After all, the break-even point, or the age at which the large checks from waiting catch up to the total amount of the smaller checks, is around age 80 to 82.
2. You’ll have to deplete your personal savings or get into debt.
You may have had every intention of waiting until 70, but life happens and when it does, it’s better to begin receiving Social Security than getting into debt or depleting your savings to get by. If you need the cash, don’t create a financial hole now for a bigger payment later.
3. Unlocking spousal benefits for married couples.
A lower-earning spouse can only begin receiving spousal benefits, which can be as much as 50% of the higher earner’s benefits, once the primary earner files for his or her retirement benefits. If your lower-earning spouse needs the benefits now, waiting until 70 to claim won’t do them any good.
4. Fund an early retirement.
The average age of retirement in America is 62, which is the earliest you can collect Social Security. If you want to join the majority and need the cash to fund an early retirement, Social Security can be a viable option. Especially if it prevents you from tapping your investments, giving them more time to grow and compound. After all, retirement can easily last thirty years, longer if you are retiring early.
5. Passing wealth on to your heirs.
When you and your surviving spouse die, your Social Security benefits disappear. You can not leave your Social Security benefits to heirs in your will. But if you want them to reap the benefits of your hard work over the years, you can collect earlier than 70 and use that money to pay for your everyday living expenses. This allows you to leave your existing IRA, 401(k), or other investments completely untouched so they can keep growing and be passed down to your beneficiaries.
It’s up to you
Deciding whether to claim Social Security at 70 is a uniquely personal choice. While waiting guarantees the biggest possible paycheck, claiming earlier can protect your health, fund your most active retirement years and safeguard your private investments for the next generation.
Take a close look at your health, your lifestyle goals, and your retirement roadmap when determining the right age for you. If you aren’t sure which path to take, seek help from a financial adviser who can help you map out the perfect strategy for your situation.