The Case for Delaying Your Social Security Benefits

Studies reveal a surprising truth: most individuals would be wise to hold off on claiming Social Security benefits. Yet, reality shows that many people jump at the chance to file early.

A staggering number of over half opt to claim their benefits before reaching the full retirement age, which currently stands at 66 and is set to climb to 67 for those born in 1960 and beyond. Alarmingly, more than 30% of applicants seize the opportunity to file as soon as they hit 62. In contrast, a mere one in twenty chooses to wait until age 70, the golden age when monthly benefits reach their peak.

For some, the decision to file early may stem from financial necessity — lacking savings or employment leaves them little choice. However, many individuals have alternatives that they simply overlook.

This oversight largely results from the myriad myths surrounding the Social Security program and the tendency for people to overestimate their understanding of it. An enlightening survey by Financial Engines conducted in 2013 showcased this disconnect: while 77% of pre-retirees expressed confidence in their Social Security knowledge, an overwhelming 95% couldn’t accurately answer eight fundamental questions about how the program operates.

Myths That Could Cost You

Let’s explore some common misconceptions that might be putting a dent in your finances:

First, it’s important to know that delaying your benefits can lead to significant increases — about 7% annually from age 62 until full retirement age, and an impressive 8% from full retirement age until 70. This increment ensures fairness: those opting for larger checks over a shorter timeframe won't be at a disadvantage compared to those choosing smaller checks for longer periods.

Yet, due to increased life expectancies, prevailing low interest rates, and survivor benefits rules, many experts argue that delaying benefits is the smarter choice. According to Sita Slavov, a public policy professor and researcher, individuals who postpone their applications can secure better financial stability.

The Insurance Against Longevity

Social Security also serves as a safeguard against living longer than you anticipate. Unexpected longevity can lead to depleted savings, leaving individuals solely reliant on Social Security, which underscores the importance of waiting to file.

Research from the Stanford Center on Longevity shows that many underestimate their life spans. For instance, a 65-year-old man today can expect to reach 84 years, while a woman of the same age can anticipate living to 86.5. Couples at age 65 have a solid 50% chance that one will reach 92 — a fact corroborated by the Society of Actuaries. If you’re currently in your mid-50s, life expectancy marks even greater potential; one in two women and one in three men can expect to celebrate their 90th birthday.

The Impact on Your Partner

Moreover, filing for benefits early can significantly affect surviving spouses. When one partner passes away, the couple will lose the smaller of their two Social Security checks, resulting in a potential income drop. Consequently, the higher earner has a strong incentive to wait, ensuring that the surviving partner receives the larger benefit.

The Unmatched Return on Delay

When it comes to investments, few opportunities can assure returns as favorable as those linked to delaying your Social Security application. To achieve similar returns, one would require exposure to high-risk investments, which could lead to disastrous outcomes in fluctuating markets.

Strategizing Your Financial Moves

It’s also worth noting that timing your Social Security claim doesn’t have to align with your career end. Financial advisors frequently recommend that retirees consider tapping into savings or retirement funds to postpone their applications, ultimately maximizing their benefits.

You don’t need to wait until age 70 to see substantial gains; merely delaying your claim from 62 to 66 can yield a 33% increase in annual living standards, according to Slavov.

Addressing the “Bankrupt” Myth

Lastly, let’s clear up a significant misconception — Social Security is not on the brink of bankruptcy. If legislative action remains stagnant, by 2035 the system may only be able to fulfill about 80% of promised benefits, certainly not zero. When reforms are introduced, they’re likely to impact those further from retirement. Early claiming merely seals the fate of receiving lower checks for life.