January 18, 2022

The Best Reason to Take Social Security Long Before Age 70

Everyone wants a higher income after retirement, right? You can get it by waiting to collect your Social Security benefits until you are 70. Still, waiting until the last minute to collect your retirement benefits may not be the right strategy.

There are good reasons to Social Security long before the age of 70. The best of these reasons is this: When you claim earlier, there are fewer wildcards that can affect the overall value of your retirement benefit.

Claim later for a higher benefit

For context, here’s a quick rundown of how timing affects your Social Security income. If you claim social security with your full retirement age (FRA), you will receive your full benefit as calculated from your income history. Claim earlier than FRA, and your benefit will be reduced, but if you claim later than FRA, your benefit will go up.

Seniors laughing while walking outside in the forest with yoga mats.

Image source: Getty Images.

In theory, your cumulative benefit should be the same no matter when you claim. Or you will receive a longer flow of smaller payments or a shorter flow of larger payments. But the totals of both streams should be the same.

Unfortunately, this theory can fail in real life if your lifespan deviates from the norm. For example, if you die early, you could earn much less to declare later. Likewise, if you die late, you can earn less by claiming early.

Social security break-even age

Knowing that your cumulative benefit can change based on your timing, a break-even analysis can help you decide when to cash in by telling you how long it will take to recoup the cost of waiting for a higher benefit.

You can already claim benefits at the age of 62. So in order to maintain your highest benefit at age 70, you must declare eight years of income in advance. If your benefit at age 62 is $1,200 per month, eight years’ income comes to $115,200.

Suppose the benefit increases by $750 each month if you applied for 70 instead of 62 break-even age is when the extra $750 pays you back the lost income of $115,200. In this scenario, it takes almost 13 years. That means if you die before age 83, claiming late will work against you.

Here are two wildcards to keep in mind.

Wildcard 1: Your lifespan

Your break-even analysis makes the most sense when you’re sure of your estimated lifespan – which most of us aren’t. If you don’t know whether you’ll live to be 80 or 90, a break-even age of 83 doesn’t make much sense.

Worse, you can be sure to celebrate your 90th birthday only to face serious health problems when you’re 70. A terminal diagnosis is devastating in itself — and knowing you won’t reach your break-even age doesn’t help.

Wild card 2: The future of social security

The future of social security could look very different from now. The federal retirement program faces a funding shortfall that could impact benefits as early as 2033. It is likely that legislators will step in and make changes to prevent pension benefits from being cut – but how that will play out is unknown.

The possibility that Social Security benefits could be reduced in 10 or 12 years creates an argument for claiming earlier. You might as well collect what you can collect now.

Certainty has value

Taking Social Security well before age 70 is the safest bet financially versus sustaining the highest benefit. Unless you’re the gamble type or prefer to work your way up to 70, the surer bet should appeal. After all, certainty has value – in life and in finances.

When thinking about when to file for Social Security, the first thing you should check is your break-even age. Then look beyond the numbers and consider the emotional value of certainty. You may decide that a lower income feels better sooner than waiting for more later.

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