As individuals contemplate their retirement plans, a common recommendation is to delay claiming Social Security benefits until the age of 70. This advice is rooted in the notion that waiting will result in the highest possible monthly benefit. However, experts warn that this conventional wisdom does not take into account individual circumstances that can significantly influence the outcome.
D’Andre Clayton, co-founder of Clayton Financial Solutions, emphasizes that waiting to claim Social Security benefits does not always lead to a financial advantage. In discussions with GOBankingRates as part of the Top 100 Money Experts series, Clayton highlighted that one of the major pitfalls of this advice is the assumption that individuals will live long enough to reap the rewards of delaying benefits. He refers to the concept of the “break-even point,” which is the age at which the increased monthly benefits from waiting exceed the total benefits lost by not claiming earlier.
According to Clayton, if one waits to claim benefits until age 70 instead of age 65, they might only start to see the financial advantage if they live to around 81 or 82 years old. With the average life expectancy being approximately 75.8 years for men and 81.1 years for women, many individuals may never reach the break-even point at all.
Clayton also pointed out that the death of a spouse can create additional financial strain. When one partner passes away, the surviving spouse may lose a Social Security check. This loss can elevate the surviving spouse into a higher Income-Related Monthly Adjustment Amount (IRMAA) tier due to increased taxable income from required minimum distributions or capital gains, ultimately negating any perceived advantages of delaying benefits.
Moreover, financial opportunity costs abound for those who adhere strictly to the traditional strategy of waiting until age 70 to claim. The funds that could have been claimed and used between ages 62 and 70 could instead have been invested in various vehicles—including Roth accounts, cryptocurrencies like Bitcoin, or other investment opportunities—that may yield higher returns than deferring Social Security benefits.
This perspective encourages individuals to evaluate their specific situations and financial goals rather than blindly following generalized advice. By considering personal health, life expectancy, and opportunities for investment, individuals can make more informed decisions about when to claim their Social Security benefits. The goal remains to optimize financial health in retirement, creating a more secure foundation for the future.