The #1 reason to claim social security at age 70
(Sam Swenson, CFA, CPA)
With inflation rates not seen since the 1980s, retirees and pre-retirees haven’t been so concerned about rising prices for some time. Combine that with a falling stock market and a growing shortage of defined-benefit pension plans, and Social Security should play an even bigger role in the financial plans of American retirees. Therefore, waiting until age 70 to claim Social Security benefits — if at all possible for you — can be a smart financial choice for a variety of reasons.
Here, we’ll dig into why inflation is the #1 reason why it makes a lot of sense to wait until age 70 to file for Social Security benefits.
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Inflation is a problem for retirees
Without overstating the obvious, inflation is a major problem for retirees living on fixed incomes. It’s slowly eating away at your purchasing power, as every dollar buys fewer goods and services than it did a year ago. Those who can still generate some kind of extra income (even if they’ve retired from their main job) can create a bit of a shield against rising prices, but not everyone finds themselves in that situation.
The problem is exacerbated by falling stock prices and the dearth of defined benefit pension plans among the retiree population. Retirees are understandably hesitant to dip into their retirement accounts in this bear market.
Since this inflation spurt has lasted much longer than most government officials expected, those without additional sources of income must find longer-term solutions to the inflation problem. .
Role of Social Security
The best way to think about Social Security as part of your retirement plan is to treat it like a guaranteed income floor. In theory, Social Security will be there to provide a minimum income for the rest of your life. The longer you wait to take Social Security, the more you’ll earn: Until you turn 70 to apply for benefits, you’ll receive 24% more from Social Security each month than if you had applied for benefits at retirement age. full pension, who is between 66 and 67 years old.
In addition to a higher base insurance amount, you will also receive inflation adjustments, or cost of living adjustments (“COLAs”), for each year of waiting. For 2023, retirees will receive an 8.7% increase in monthly benefits, although you must have received benefits for at least one year to get the full COLA (otherwise you will receive a pro-rated adjustment for inflation). With a stock market that has touched bearish territory several times this year, taking collateral where it is available seems, to say the least, a sensible way to go.
The reality is that very few other sources – if any – can provide a guaranteed income floor combined with (even imperfect) annual inflation protection simply by letting enough time pass.
With that in mind, waiting until age 70 to start collecting benefits requires being in fairly good health. You will also need to find a way to bridge the gap financially if you retire from your primary career before age 70. All of these considerations make this an important issue to discuss with your family and any dependents.
Inflation calls for creativity
Since Social Security plays an important role for many retirees, those nearing retirement may need to get creative in their 60s to increase their benefits from the program. The value of waiting until age 70, assuming all variables align, rises dramatically, especially given the broader economic landscape (including poor stock performance and higher borrowing costs) . But in the end, the increase in the base benefit, along with the annual inflation adjustments, may make it wise to wait until age 70 before filing your claim.
Retiring comfortably is still possible, and many millions of people will. But having a monthly check that covers as much of your living expenses as possible is ideal. Working even small amounts in your 60s can help you build enough of an income bridge to reach age 70, when you’ll receive your maximum possible Social Security benefit for the rest of your life. While everyone’s circumstances vary, waiting to claim in the face of inflation can be a brilliant choice for many retirees.
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