Only 1 in 4 Pre-Retirees Plan To Maximize Social Security Benefits: Is This a Mistake?

When you choose to collect your Social Security benefits will affect the size of your check. Although you can start receiving Social Security retirement benefits as early as age 62, you will receive a reduced benefit until you reach full retirement age. If you delay taking your benefits from your full retirement age up to age 70, your benefit amount will increase.

For Gen X, the full retirement age is 67. Those who elect to start collecting Social Security at age 62 will have benefits reduced by 30%, which means that a $1,000 retirement benefit would be reduced to $700. On the flip side, if they wait until age 70 to collect, their benefit will be 124% of their full benefit.

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Despite the financial incentives, only a small percentage of Gen X plans to delay collecting their Social Security benefits. According to the latest Northwestern Mutual Planning & Progress Study, just 26% of this generation plans to delay collecting Social Security as long as possible so they can maximize their monthly benefit. Nearly half of Gen X (46%) plans to collect when they reach their full retirement age, and 28% plans to collect as soon as they are able to.

Here’s a closer look at why it can be a good idea for pre-retirees to delay benefits, why they might not want to wait to collect and how to decide what’s right for you.

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Delayed Gratification: Why You Might Want To Wait To Collect Social Security Benefits

Waiting to collect Social Security can pay off handsomely in the long run.

“For each year you delay taking Social Security benefits past your full retirement age until age 70, your monthly benefit increases,” said Edward “Ted” Shanahan, partner and wealth management advisor for Northwestern Mutual’s Blueprint Financial, based in Reston, Virginia. “This can significantly increase your lifetime benefits if you live longer.”

The higher your benefit amount, the more you will get from cost of living adjustments (COLAs).

“Delaying benefits allows you to receive higher cost of living adjustments on Social Security payments, which can help keep up with inflation over time,” Shanahan said. “By delaying, you can reach a break-even point where total benefits surpass what you would have received had you started earlier, potentially leading to more income in your later years.”

There are also benefits to delaying benefits if you continue working past your full retirement age.

“If you continue to work while delaying benefits, you can also minimize taxes on your Social Security income since it will not be counted as income until you start receiving it,” Shanahan said. “And if you pass away, your spouse may receive the higher benefit amount based on your delayed retirement, providing additional financial security for them.”

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Why Waiting Until 70 Isn’t Always the Best Plan

While there are financial incentives for waiting to collect Social Security benefits, this isn’t an approach that will work for everyone.

“If you delay benefits and do not live long enough to reach the breakeven point, you could end up receiving less money overall compared to starting benefits earlier,” Shanahan said. “Depending on one’s health situation, delaying benefits might not be feasible for individuals who need income immediately to cover living expenses or healthcare costs.”

Even if you can delay receiving benefits, it isn’t always the best financial choice.

“The money you don’t receive from Social Security during the waiting period could potentially be invested elsewhere,” Shanahan said. “If investment returns are higher than the Social Security increase, it may make more sense to take benefits earlier.”

How To Determine the Best Timing for You

When it comes to collecting Social Security, there is no one-size-fits-all approach. Talking to an expert can help you figure out the timing that makes sense for you.

“Consulting with a financial advisor can help you analyze your specific situation, run projections and determine the best strategy tailored to your retirement goals,” Shanahan said. “Together, you’ll consider your current financial situation, including income needs, savings and expenses. If you need the income to cover basic living costs, starting benefits sooner may be necessary.”

You’ll also need to consider when you plan to stop working.

“If you plan to continue working part time or full time, consider how earning additional income will affect your Social Security benefits,” Shanahan said. “Earning above a certain threshold can reduce your benefit temporarily until you reach full retirement age.”

Your health and family circumstances are other factors to consider.

“If you expect a shorter lifespan due to health issues, claiming benefits earlier might be more beneficial,” Shanahan said. “Finally, if you’re married, consider the benefits available to your spouse. Delaying one partner’s benefits can provide a higher survivor benefit for the other.”

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This article originally appeared on GOBankingRates.com: Only 1 in 4 Pre-Retirees Plan To Maximize Social Security Benefits: Is This a Mistake?