Hard But True: Claiming Social Security Late Has Pitfalls

Key Points

• Delaying Social Security can boost your benefits for life.

• This strategy doesn’t work for everyone, though.

• Think about the big picture before waiting to get your benefits.

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Americans are often advised not to plan to retire on Social Security alone. And the reason is simple — those benefits will only replace a limited portion of your pre-retirement wages.

If you’re a pretty average earner, you can expect Social Security to replace about 40% of your pay — assuming that benefits don’t get cut, of course. But that means having to adjust to a much lower income if you don’t have other sources to fall back on, like savings or earnings from a part-time job.

However, many Americans inevitably wind up retiring with little to no money saved. That forces them into a situation where they’re extremely reliant on Social Security to make ends meet. If that’s a situation you anticipate being in, you may be inclined to hold off on claiming Social Security for larger monthly benefits.

You’re eligible for your monthly checks without a reduction once you reach full retirement age (FRA). That age is 67 if you were born in 1960 or any year after that.

But if you delay your claim past FRA, your monthly benefits will get an 8% boost for each year you do, until you turn 70. So all told, you could set yourself up with a lot more money each month — perhaps enough money to help make up for a lack of savings.

But while claiming Social Security late is a smart idea for some seniors, it’s not the right decision for everyone. And it’s important to understand why.

The downside of taking benefits late

Claiming Social Security at 70 is guaranteed to give you more money on a monthly benefit. But there’s no guarantee you’ll get more Social Security on a lifetime basis.

When you delay your claim, you miss out on several years of being able to get benefits. So you need to live long enough to make up for those missed payments to come out with more Social Security income in your lifetime. And if you don’t end up living very long, you lose out.

Of course, this begs the question: How are you supposed to know how long you’ll live? And the answer is, you can’t predict that. The best you can do is make an educated guess and then decide whether you’re willing to take the risk.

Say you’re approaching FRA in excellent health, and you have parents who are still alive in their 90s. That may be an indication that you’re likely to live pretty long yourself. So in that situation, it’s easy to make the case for delaying Social Security.

But if you’re nearing FRA with known health issues, and your parents didn’t live beyond their 70s, then you may want to claim benefits right away rather than wait. Doing so could actually put more lifetime income in your pocket, even if you’re not getting the largest monthly paycheck possible.

In fact, if your health is truly poor, you may want to claim Social Security before reaching FRA. You can sign up once you turn 62. And while that will result in reduced monthly benefits, it actually might translate into more lifetime income.

Look at the big picture

When you’re worried about not having enough money in retirement because you lack savings, it’s easy to fall back on a late Social Security claim as your backup option. But that’s not automatically the best choice.

Before you decide to wait, think about your health and life expectancy. But also, think about other ways you may be able to generate income if you claim Social Security sooner and accept a lower monthly check.

Earnings from a job, for example, could potentially put more money in your pocket than the boost you get from delaying Social Security. So it’s worth exploring different options before automatically deciding to sign up late.