Conventional wisdom says waiting until 70 guarantees the best Social Security payout, but real-life decisions aren’t always that simple. Personal finances, health, and unexpected life changes can turn a well-intended plan into a costly mistake. The right timing depends on more than just maximizing a monthly check. Before assuming later is better, consider these often-overlooked reasons it might not be worth the wait.
Losing Lifetime Benefits
Delaying Social Security until 70 increases monthly payments, but it only pays off if you live long enough. The breakeven point, where waiting leads to more total benefits than claiming early, usually falls between ages 78 and 82. If you live past that, delaying is worth it. If not, claiming earlier may be the better choice.
Unexpected Tax Burdens
The IRS determines taxable portions, so early tax planning is essential. If combined income, including adjusted gross income, nontaxable interest, and half of benefits, exceeds $34,000 for individuals or $44,000 for couples, up to 85% of what you receive may be taxable. A larger cheque isn’t always more money in your pocket.
Health Risks In Retirement
The CDC reports that a good percentage of senior adults may suffer from one chronic illness that increases the likelihood of health challenges in later retirement years. Mobility issues, cognitive decline, or unexpected medical expenses can make enjoying the cheque a challenge due to delayed Social Security.
Impact On Spousal Benefits
A claim delay can significantly affect spousal and survivor payments. If the higher-earning spouse delays and passes away earlier than expected, the spouse who survived may receive reduced lifetime benefits. The Social Security Administration advises couples to strategize their claims based on both lifespans and income needs.
Inflation Erodes Value
An SS cheque that seems sufficient today might not hold its value tomorrow. The Senior Citizens League found that since 2000, payouts have lost 36% of their buying power due to inflation. Cost-of-living adjustments help, but they don’t always match the rise of expenses, especially in healthcare and housing.
Draining Retirement Savings
Retirees who delay the payouts often drain personal savings faster without a stable income to cushion unexpected costs. Over time, this depletes retirement accounts, particularly during market downturns. Financial advisors commonly recommend a 4% safe withdrawal rate, which can be difficult to maintain when market performance is poor.
Missed Investment Gains
While the stock market has provided higher average returns over the long term, investment returns are not guaranteed and involve significant risk. Social Security’s delayed retirement credit offers a guaranteed, albeit lower, annual increase of around 8%. Balancing investment risks with the stability of the benefit payout is key.
Forced Early Retirement
Many plan to delay the payment, but over 40% of retirees retire earlier than expected, often due to unexpected job loss, health issues, or family caregiving responsibilities. The Transamerica Center for Retirement Studies found that many workers retire prematurely due to factors beyond their control.
Delayed Benefits And Medicare Costs
Waiting to claim Social Security beyond full retirement age does not delay Medicare costs. Retirees who enroll in Medicare without claiming their benefits must pay premiums out of pocket. Additionally, delaying Social Security can lead to higher Medicare Part B and D premiums due to Income-Related Monthly Adjustment Amounts (IRMAA), which increase costs for higher-income earners.
Emotional And Financial Stress
Outliving one’s savings can contribute to stress and anxiety. Those who delay Social Security often feel pressured to budget carefully and extend employment longer than desired. The National Institute on Aging states financial uncertainty can negatively affect mental well-being. A well-balanced claim strategy fosters peace of mind.
