Why It May Be Better to Delay Your Social Security Benefits

Happy retired couple

Some people, including one of our founding fathers, have mused that nothing in life is certain, except for death and taxes. But the government benefit that you’ve been saving for your whole adult life is designed to be there for you when you need it most—after you’ve stopped working. Established in 1935, the Social Security program provides a reliable source of income for people when they retire, in addition to any individual retirement accounts they might have.

And while it’s tempting to begin collecting Social Security as soon as you become eligible at age 62, it might be better to delay.

Here are four reasons why you should consider holding off:


1. A Higher Annual Payout

If you wait to claim Social Security, you can reward yourself later with a higher annual benefit. That’s because delayed retirement credits will kick in at age 62. For every year you postpone filing for Social Security, you’ll earn a credit, which translates into an increased annual payout of approximately 8%.

For example, assuming your Full Retirement Age (FRA) is 67:

  • If you postpone collecting until age 68, you’ll raise your benefit by 8%
  • If you postpone until age 69, you’ll raise it by 16%
  • If you postpone until age 70, you’ll raise it by 24%

The incentive isn’t permanent, however. The 8% annual increase for delaying benefits will end once you turn 70.


2. Lower Taxes on Your Benefit

If you choose to draw Social Security as soon as you’re eligible, you might have to begin paying income taxes on it. Depending on your total income, which includes sources beyond Social Security, up to 85% of your benefit could be taxed. If you wait until age 70, not only will you have earned an annual 8% credit, you’ll have saved yourself from having to pay taxes on Social Security for up to eight years. This will also give you the opportunity to explore tax-saving strategies like a Roth IRA conversion.


3. A Greater Average Life Expectancy

Data from the Centers for Disease Control and the Social Security Administration suggest that today’s retirees will live longer compared to their peers from the past several decades. In 1960, for instance, a 65-year-old male was expected to live, on average, until he was 78. By 2020, the average life expectancy for a 65-year-old male had jumped to between the ages of 84 and 86½. Moreover, 1 out of 7 retirees—male and female combined—will live to age 95. To estimate your own projected life expectancy, based on your current age and full retirement age, you can use the Social Security Administration’s life expectancy calculator.

It’s great to live a long life, but not if you find yourself running out of money.

So, how do you prepare for the possibility of a 25- or even 30-year retirement? Begin by listing all your long-term needs and wants, such as housing, food, medical expenses, recreation, and travel. Rank them in order of importance, and assign estimated amounts for your monthly outlay. Factor in at least 2% for inflation. The idea is to get a general idea of your post-retirement expenses.

And remember that as your health begins to decline, whether due to illness or the natural aging process, you might need to move to some type of senior community, whether that’s an independent living facility, assisted living facility, or nursing home. The costs of eldercare can be pretty steep, especially private-pay options, so make sure you save enough to cover your expenses.

By delaying Social Security until age 70, you’ll have a bigger pool of money from which to draw during retirement. If your post-work longevity mirrors current statistical models, that could mean a very long time.


4. A Larger Benefit for Your Surviving Spouse

If you’re married, here’s another point to consider: survivor Social Security benefits. When one spouse dies, the surviving spouse becomes eligible to receive their loved one’s Social Security benefit. The survivor must be at least 60 years old, and the union has to have lasted at least nine months.

Let’s assume that both partners qualify for Social Security due to their work histories. If the deceased partner was the higher wage earner, the surviving partner is entitled to the higher benefit. Moreover, if the deceased loved one waited until age 70 to start drawing Social Security, the lifetime benefit they leave behind is the highest-possible.

It’s true the future doesn’t always work out the way we hope. But couples can take comfort knowing that if only one partner lives to a ripe old age, that person will reap the maximum Social Security benefit available to them.


We May Not Know the Future, But We Can Still Plan for It

There’s no crystal ball to tell us if the Social Security program we know today will be exactly the same tomorrow. We also can’t predict what federal tax brackets will look like decades or even years from now. But we can make some educated guesses based on what we know right now, and plan accordingly.

At Level, when we bring you on as a new client, we use sophisticated modeling software to create a long-term projection of your tax rates for the rest of your life based on all currently known variables. We know that our projections will never be 100% accurate; there can be a lot of surprises and unexpected events during a 10-, 20-, or even 30-year retirement. That’s why we stay committed and help you with any needed adjustments, especially if your financial outlook changes. We continually optimize every client’s unique financial picture in real time.


Want someone who can help you work through all the elements of a sound retirement plan?

Talk to a trusted financial advisor before making any decisions. Feel free to reach out to us with any questions you may have or to discuss your retirement goals and concerns. Click here to set up a free consultation or call 716-634-6113.


About Level Financial Advisors

Since 1979, Level has helped countless individuals and families in the greater Buffalo area retire with dignity, achieve their financial goals, manage their wealth, minimize taxes, and leave behind a legacy. And unlike other so-called financial “advisors,” our CERTIFIED FINANCIAL PLANNER professionals are fiduciaries in the truest sense. We aren’t compensated for the products we sell, and we don’t work on commission, so you can be confident our advice is in service of your goals—not our own bottom line.


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