The Unfortunate Truth About Claiming Social Security at Age 70
If you want to maximize your Social Security benefits, you’re probably thinking you should wait until age 70 to apply. After all, 70 is the age when you stop accruing delayed retirement credits, which increase your monthly check for each month you wait to claim Social Security. All things being equal, you’ll end up with a check about 77% bigger than what you’d receive if you claimed as soon as possible at age 62.
But waiting until 70 isn’t necessarily the slam dunk it might seem. There are a lot of drawbacks to consider when it comes to your overall retirement picture, including your personal retirement savings and your total household retirement income. Here’s the unfortunate truth about claiming Social Security at age 70.
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You could end up with more by claiming earlier
The main idea behind waiting until age 70 to claim benefits is that the increase in monthly benefits will eventually make up for the foregone years of not collecting Social Security in your 60s. However, that requires you to live long enough to overcome the late start. And, unfortunately, that’s far from guaranteed.
Even in studies that examine the optimal age to claim Social Security, waiting until 70 isn’t the best age for everyone to maximize their wealth in retirement. A United Income study from 2019 found 57% of seniors would maximize their wealth in retirement by waiting until age 70. Life expectancy data from the Centers for Disease Control says the average person in their 60s will live just long enough to make 70 the optimal age. In other words, it’s only a slightly better than 50% chance that 70 is the optimal age for you, specifically.
You can use additional information about yourself to determine whether it makes sense to delay until age 70. If you’re in above-average health and your family history includes people living well into their late 80s and 90s, then it probably makes sense to wait. If you have a chronic disease or a family history of early deaths, then it might not be the best idea.
You have an information edge when it comes to your decision about when to claim Social Security. Make sure you use it.
You could rely too much on your retirement savings in your 60s
One of the biggest risks to your retirement portfolio is called sequence of return risk. The sequence of return risk is the risk that your portfolio will see weak returns in the early years of your retirement. As you draw on your retirement savings for living expenses, you further lower your portfolio balance. Then, by the time the good returns come around, you don’t have enough assets left in your account to really benefit from strong performance in later years.
The sequence of return risk can be amplified in situations where you plan on front-loading your withdrawals, as may be the case if you delay Social Security until age 70. Even though you’ll be able to significantly reduce your withdrawal rate once you start collecting benefits at 70, it could be too late at that point to make up the difference. The result is less wealth overall.
There are many things you can do, however, to mitigate the sequence of return risk. You could temporarily lower your withdrawal rate by skipping luxury expenses or making inflation adjustments in years where your portfolio declines. You could adjust your asset allocation to include more cash to help offset the potential declines from riskier assets. The risk is manageable, but it comes with a cost.
Your household income could be higher
The decision on when to claim Social Security gets a lot more complicated when you consider how it might impact your spouse’s benefits or how your spouse’s benefits might impact your Social Security.
Spousal benefits can be worth as much as half the amount the primary beneficiary would receive at full retirement age. In order to receive that amount, you only have to wait until your own full retirement age to claim, which is 67 for anyone born in 1960 or later.
There’s a big catch, though. Both spouses must claim benefits in order for the lower-earning spouse to receive spousal benefits. That said, the lower-earning spouse can still receive their own retirement benefit, if they qualify, until the higher-earning spouse applies for their own benefit.
The dynamics of spousal benefits can make it so neither spouse should wait until age 70 to claim benefits. In most cases, at least one spouse should claim earlier.
Counterbalancing the value of claiming early to enable spousal benefits is survivor benefits. Survivor benefits can be worth as much as the deceased beneficiary was receiving before they passed away. That makes delaying until 70 more appealing, as it could leave your widow(er) with a bigger monthly check once you pass.
Figuring out the proper strategy depends heavily on your personal situation. It may be worth sitting down with a professional to look at the various scenarios and figure out the best option for you. The long and short of it is that claiming at age 70 is far from a no-brainer decision for most people.
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