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Social Security: 3 Great Reasons to File for Benefits at 70

The 96% of Americans who are covered by Social Security can choose to claim their retirement benefits at any time between the ages of 62 and 70, but only about 3% of Americans wait as long as possible. And to be fair, there are some perfectly valid reasons to claim early, such as the unexpected loss of a job, a known health condition, or simply because you need the money.

However, there are some good reasons to wait, and it’s important to know the benefits of waiting before you make your decision. With that in mind, here are three reasons you may want to apply for Social Security at age 70.

Elderly man and woman sitting on a couch.Elderly man and woman sitting on a couch.
Elderly man and woman sitting on a couch.

Image source: Getty Images.

You plan to work well beyond full retirement age

Perhaps the most obvious reason to delay claiming Social Security is that you’re still working.

It’s a common misconception that you can’t work and collect Social Security benefits at the same time. And it’s partially true, in the sense that earning too much can result in your Social Security benefit being withheld, but this rule (known as the Social Security earnings test) only applies before you reach full retirement age. Once you’ve reached your full retirement age, you’re free to collect your entire Social Security benefit, regardless of how much you earn at work.

Having said that, if you’re still working at full retirement age and don’t need the extra money, it can make good financial sense to allow delayed retirement credits to accumulate and make your monthly benefit much higher when you do need it.

Social Security benefits only continue to get higher until you turn 70, so “I’m still working” can be a great reason to wait until 70 to file your application for retirement benefits.

You are the higher-earning spouse

Until about two years ago, there was a Social Security loophole known as “file and suspend,” which allowed one spouse to file for benefits at full retirement age, and suspend them to allow them to grow larger, while the other spouse collected a spousal benefit on their work record in the meantime. So, one spouse would get benefits now, and the other would get larger benefit checks later. I won’t get into the mathematics, but it would be accurate to say that this was a lucrative strategy for many retirees who turned 66 before May 2016.

Well, file and suspend is gone, but couples in which both spouses are entitled to substantial Social Security benefits can use an alternative strategy.

Specifically, the spouse entitled to the lower Social Security benefit files at full retirement age or sooner, starting the flow of some retirement income. Meanwhile, the spouse entitled to the higher benefit waits as long as possible, as delayed retirement credits will have a larger impact on the higher benefit amount.

For example, let’s say that you and your spouse both turn 66 in 2018 and are entitled to Social Security benefits of $2,000 and $1,500, respectively, per month at full retirement age. Your spouse would claim their benefit at full retirement age, starting the flow of $1,500 per month in retirement income. Meanwhile, you would hold off filing your own benefit application, instead living on your spouse’s benefit and your other retirement savings, while your Social Security benefit accumulates delayed retirement credits. By the time you turn 70, your $2,000 monthly benefit would have ballooned to $2,640 per month in inflation-protected retirement income.

Your savings are enough to support you for a few years

For many retirees, Social Security is the only source of inflation-protected retirement income they have. So, if you’re worried about inflation destroying the purchasing power of your retirement nest egg, and have enough to support yourself from your 401(k) or other retirement savings for a few years, it could be smart to wait.

Here’s an example. Let’s say that you and your spouse are both entitled to $1,800 monthly Social Security benefits and have a total of $1 million in retirement savings, and that you’re both turning 66 (full Social Security retirement age) in 2018.

If you claim Social Security now, you’d get $3,600 per month from Social Security, and based on the 4% rule of retirement savings, your could reasonably expect to withdraw $40,000 ($3,333 per month) from your savings. This adds up to $6,933 in monthly income, $3,600 of which will rise with inflation over time with no effect on your savings.

On the other hand, let’s say that you decided to withdraw $7,000 per month from your savings for the next four years, as you let your Social Security benefit build up. I’ll spare you the mathematics, but if your savings earn a 5% rate of return, you’ll have about $835,000 left at age 70. Meanwhile, your Social Security benefits would now be $2,376 each.

So, in this scenario you would have $4,752 in Social Security income, and you could safely withdraw $33,400 from your retirement savings ($2,783 per month). Not only would you have $7,535 in monthly income — about $600 more than the other option — but more of it would be inflation-protected for life.

To be fair, there are disadvantages to this approach, and I’m not saying that one option is better than the other 100% of the time. However, if inflation protection is a priority for you, it’s a strategy worth considering.

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