As you plan for your retirement, you may want to consider how a delay in your retirement age can help you get more money from Social Security. After all, planning for your retired life isn't just about making sure you have enough income after you stop working, but finding ways to maximize your retirement income. For example, delaying the year at which you begin receiving Social Security payments can actually increase the size of your monthly checks substantially.
How Delayed Retirement Can Increase Your Monthly Social Security Checks
The size of your Social Security retirement benefits is based on a combination of your lifetime earnings and the age at which you begin collecting benefits. When you reach "full retirement age," you're eligible to collect 100% of your earned Social Security retirement benefits. You may receive retirement benefits early, but the size of your monthly payments will be reduced. If you wait beyond full retirement age, your monthly payments will be larger. For those born before 1940, full retirement age is 65 and increases slowly to 67 for those born after 1962.
Waiting past your full retirement age to collect Social Security will result in increases to your monthly payments based on each additional month you don't collect, up until you reach the age of 70. For a worker born after 1943, delaying retirement one year beyond full retirement age will increase Social Security benefits by 8%. Due to these increases, a worker who delays collecting Social Security until 70 will get a monthly benefit that's more than 75% higher than if he had retired at 62.
Finding Your "Break Even Age"
Of course, a larger monthly check isn't all you should consider. Maximizing your Social Security benefits means not just thinking about the size of your monthly check, but your total Social Security income over your retirement years. Your "break even age" is the age at which, when considering between retiring early and delaying retirement, both choices would result in the same income. If you expect to live past your break even age, delaying retirement will often mean greater total lifetime Social Security income.
To best show what the break even age is and how it works, it's useful to look at an example. Say, for instance, that based on your lifetime earnings, you would get $1000 a month if you retired at the age of 65, and $1500 per month if you waited until 70 to start collecting benefits. The break even age for this example would the point the age at which you would have made the same amount of money based on the two choices. Here, that age is 80. When you turn 80 years old, you would have received $180,000 if you started collecting at age 65 and $180,000 if you waited until 70.
If you expect to live past 80 years old, collecting when you turn 70 would result in more money in the long run, since your monthly payments would be larger. On the other hand, if your life expectancy is less than 80 years old, you would be better off collecting at 65. You can use the Social Security Administration's benefits calculator to determine the how an early or late retirement would impact your benefits.
Other Factors to Consider When Thinking About Delayed Retirement
Getting the largest monthly benefit or the most lifetime Social Security income shouldn't be your only consideration when thinking about a delayed retirement. First and foremost, if you're no longer able to continue working in your old age, it might be impossible to delay retirement. At the same time, you may have other sources of retirement income.
Some analysts suggest that using income from a 401k or IRA while delaying Social Security benefits can be worthwhile. If your annual returns on your retirement savings are under 5%, it could be more financially beneficial to postpone collecting Social Security while you live off those funds. You'll also want to take into account how long you expect to live after retirement. The government provides a life expectancy calculator which may be helpful, but you should also think about your own medical history and needs. Finally, if you're married, the benefits available to your spouse should also be considered.
Whether it is better to delay retirement in order to get more money from Social Security will depend on a number of factors. If you're wondering about how best to provide for your retirement, consider contacting a Social Security and retirement planning attorneyto discuss your options.
