SSocial Security may have its share of rules, but the program is actually quite flexible. In fact, you can sign up for benefits any time after age 62 (although from a financial perspective, it doesn’t pay to sign up after age 70).
You are now entitled to your full monthly benefit based on your personal salary history once you reach full retirement age, or FRA. FRA is 66, 67 or somewhere in between, depending on the year you were born.
But you can delay your deposit beyond that point, and for each month you do, your benefit increases by 2/3 of 1%. All told, that equates to an 8% increase per year that you would expect. And that incentive doesn’t run out until age 70, meaning if your FRA is 67, you have the option to lock in a 24% higher monthly benefit – for life.
Of course delay Social Security is not an easy thing to do. This means having to wait longer for your money, which could, in turn, mean having to take care of a job for a few more months or years, depending on how long you delay depositing. But it pays to consider delaying your application if these scenarios apply to you.
1. You don’t have enough savings
As a general rule, you should aim to save enough money in an IRA or 401(k) plan to replace 10 to 12 times your ending salary. This means that if you are making $100,000 a year towards the end of your career, ideally you will retire with a nest egg worth $1-1.2 million.
If you are far from reaching this goal, it makes sense to delay Social Security. A higher monthly benefit could offset small IRA or 401(k) withdrawals.
2. You’re worried about paying for health care
HealthView Services estimates that the average healthy 65-year-old couple retiring in 2021 will spend up to $662,156 on health care throughout their retirement. It also means that the typical couple will spend 68% of their Social Security benefits on health care.
But if you get a higher monthly benefit, you’ll have an easier time paying for health care. And you could also stress a lot less about it.
3. You have big retirement goals you want to achieve
Maybe you haven’t traveled much during your working years, and now you finally want to travel around Asia and visit a host of European cities. Or maybe you’ve spent your career living in a small suburban town, and now you want to know what it’s like to live in a city like San Francisco or New York.
If you have lofty retirement goals, a higher Social Security benefit could help turn them into your personal reality. And even if your goals are more modest, a more generous benefit will still allow you to reach them without worry.
Delaying Social Security usually involves making some degree of sacrifice. But if these situations apply to you, it’s worth doing your best to increase your lifetime monthly benefit.
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