The Savings Game: Waiting until age 70 to file for Social Security benefit

Q: I am 67 and have not applied for my Social Security benefit yet. My wife applied for her benefit at age 70. I am not sure that waiting until 70 is best for me and my wife. I want to make sure that waiting until 70 is best, taking into consideration my benefit and potential spousal and survivor benefits.

A. Good question. First, let’s review the increase in benefit you are entitled to if you wait until age 70 to file. After you reach your full retirement age (FRA), you can postpone filing for your Social Security benefit until age 70. You can change your mind any time you choose, from your FRA to age 70. By postponing applying for your benefit, you are increasing the amount by 8% per year until age 70. There is no advantage in postponing applying after 70.

If you are healthy and expect a long life, then postponing your benefit can be a good choice. Basically, when you make the decision to postpone applying for a benefit, you are making the assumption that the additional income you will receive after 70, will outweigh the income you could have received if you applied for your benefit at your FRA.

The most significant potential disadvantage is related to your expected life span. If knew you were going to die at 71, then obviously you and your family would have been better off if you filed for your benefit at age 67. If you expect a long life, then postponing filing would be a sound economic decision. Another potential disadvantage is that your wife cannot file for a spousal benefit until you file for your benefit. In this case, this disadvantage is not relevant.

Spousal benefit

There is a common misunderstanding regarding spousal benefits. Even if you wait until age 70 to apply for a benefit based on your work record, your wife will not benefit. Spousal benefits are not based on a spouse’s age 70 benefit. They are based on your benefit at your full retirement age. In addition, she will not be eligible for spousal benefits unless 50% of your FRA benefit is greater than the benefit she now receives based on her own work record. She is only entitled to whichever is greater, the spousal benefit or the benefit she is entitled to based on her work record, not both.

Survivor benefit

There is a major distinction between survivor benefits and spousal benefits when you postpone filing. As I indicated in the prior section, even if you postpone filing for your work-record benefit until age 70, there will not be any advantage for a spousal benefit. Your wife would receive the same spousal benefit as if you applied for your benefits at your full retirement age.

However, her survivor benefit would be based on your benefit if you postponed filing after reaching FRA. In that situation, your spouse would be entitled to 100% of your Social Security benefit at the time of your death. If you died at age 78, your spouse would be entitled to 100% of the benefit you would have been entitled to at age 78, even if you had not filed for a Social Security benefit yet.

Lump sum options

If you postponed filing for a benefit after age 70, you have the option to file for a lump-sum benefit of six months, computed back from the date you file for benefits. For example, assume that, at age 78, you decide to file for your Social Security benefit, but you would like to receive a lump-sum payment of six months’ worth of your benefit. The Social Security Administration would compute the benefits you would have received at age 77 1/2. They would then send you a lump sum of the difference between our benefit at 77 1/2 and 78. However, then you would receive an ongoing benefit as if you applied for your benefits at age 77 1/2, not 78.

Bottom line: There are advantages and disadvantages to postponing filing for benefits until age 70. You can change your mind between your full retirement age and age 70. So, if you decide you want to initiate your benefit at age 78, you can. You would still receive boost of 8% a year from your FRA benefit amount to the date you select to initiate the benefit. That decision should be based on your need for income and your health status.

Elliot Raphaelson welcomes your questions and comments at raphelliot@gmail.com.