Postponing Social Security until 70? Why you may lose income | Smart Change: Personal Finance
When you’re trying to determine the right age to claim Social Security, you’ll likely see a lot of experts advising you to wait until age 70 to start your benefits. And this tip has advantages, because most people end up doing a little better at waiting.
But postponing your claim for benefits for too long is not always the right approach. In fact, it could cost you thousands of dollars in lost income. You don’t want to lose, so it’s important to understand when delays are likely to leave you least, and how to make the best claim option for your situation.
Can delaying your Social Security claim until 70 cost you a fortune?
You can claim Social Security retirement benefits once you turn 62. However, if you want the largest possible monthly payment, you will have to wait until 70. The amount of each monthly payment goes up for each year you qualify for benefits but do not get them. This increase occurs either because you are not exposed to early deposit penalties that reduce your standard benefit or because you earn deferred retirement credits that increase them.
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In order to get that top check, you have to forfeit some payments in full. If you qualify for benefits at age 62 but don’t receive benefits until age 63, you will lose 12 full checks. And if you wait until you turn 70, you will forgo eight years of payments that would have been deposited into your bank account. Those 96 payments you won’t receive and could have come your way.
Whether or not the delay costs you money because of those 96 missed payments — or leaves you in a better position because of higher payments later — will depend on how long you live. You must live long enough to get the extra money you get after you finally hit 70 to fully make up for all 96 payments you didn’t receive. If you do, you will tie. And if you live longer and keep getting benefits checks from now on, you’ll end up with more benefits for life.
If you die before you break, you will lose some of your Social Security income that would have been yours. And the amount you missed could be significant.
How much can a 70 claim cost you?
To find out how much money you could lose on a late Social Security claim, calculate how much gross income you lose by deferring applying for benefits.
Let’s say you were on track to get the average monthly benefit of $1,657. You will only receive this amount at your full retirement age (FRA), which is between 66 and 4 months and 67. If your FRA is 67 and you get your first payment at 62, five years of filing early for penalties will end up reducing you Monthly income to $1,160 each month.
If your payments start at 62 despite this reduction, the 96 checks between 62 and 70 will total $111,360. So you could potentially lose that entire amount if you died on your 70th birthday before getting even one Social Security check.
Being late up to the age of 70 entitles you to avoid early filing fines And the Earn three years of overdue retirement credits. This will leave you with a monthly interest of about $2,055 – about $895 more than the payments you would have received starting at 62. In order to make up for that extra $895 a month on the $111,360 you missed, you need to live what A little over 10 years old. If you die sooner, you will end up worse off because you waited.
It’s important to take this lost income into account when deciding whether to defer a Social Security claim rather than just assuming waiting until 70 is best just because bigger checks come next.
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