Delaying Social Security to This Age Could Cost You $192,000

One of the best ways to increase your monthly Social Security payment is to wait until age 70 to file for benefits.

For example, someone who files for benefits at age 62 and is eligible for a payment of $1,260 a month will see that payment balloon to $2,230 if they wait until age 70 to file.

However, even though waiting until 70 appears to help you get ahead financially, it isn't always the right choice.

Why some wait until 70 to enroll in Social Security

The longer you wait to enroll in Social Security, the bigger your benefit becomes, at least up to age 70.

At full retirement age, you are entitled to 100% of your Social Security benefit. For anyone born in 1960 or later, full retirement age is 67.

Waiting beyond full retirement age boosts your monthly benefit even higher. For every year you wait between 67 and 70, you see an 8% boost in your monthly payment.

That means waiting until 70 gives you a boost of 24% in the size of your monthly payment for the rest of your retirement. The jump is up to 32% if you are among the older group of beneficiaries whose full retirement age was 66.

There is no benefit to delaying beyond age 70, so you should not wait to claim benefits once you turn that age.

While waiting until 70 gives you the biggest monthly payout, the decision comes with some potential drawbacks, including the following.

You miss a lot of checks

If you are entitled to $2,000 a month in Social Security benefits at 62 but you wait until 70 to file, you miss out on 96 monthly checks. That is $24,000 a year, or $192,000 total over those years.

Those who are retired and who live on a tight budget will likely feel some real financial pain from delaying enrollment until 70.

You might die young

Nobody likes to think about the possibility of dying prematurely, but it's always a risk.

If you die in your late 60s or in your 70s, it is unlikely you will have enough time to make up for all those missed checks.

Research has found that you generally have to live until around 80 years old before you break even on your decision to delay enrollment until your 70th birthday.

So, those who die in their 60s or 70s typically would have been better off claiming earlier instead of waiting.

The break-even math is complicated

Although those who delay claiming until age 70 technically break even around the age of 80, the reality is a bit more complicated than it appears on first blush.

Critics have pointed out that the math ignores the fact that a dollar you receive at age 63 is not the same as one you receive at 78.

Joe Elsasser, a certified financial planner and president of the Social Security claiming software company Covisum, also points out that too many people ignore how claiming timing impacts everything from an individual's taxes to their portfolio withdrawal rates and more.

You might have to drain your IRA or other accounts

As we noted, for the eight years the person in our example waits from age 62 to age 70 before claiming, they will lose around $2,000 a month, or $192,000 in total.

Many people in this situation probably would turn to withdrawals from a savings account, IRA, or 401(k) account to make up for that lost money. But doing so can force you to pay more in taxes once you start making such withdrawals.

In addition, the money you pull from your account no longer will be around to grow in a tax-deferred manner.

Other tax consequences may emerge

Collecting a bigger Social Security payment is a major perk of waiting until age 70 to claim. But that larger check also has the potential to push you into a higher tax bracket.

The risk is even greater for those who are approaching the years when required minimum distributions (RMDs) on tax-deferred accounts begin. Depending on when you were born, RMDs will either begin at age 73 or 75.

If your income creeps high enough, it could make up to 85% of your Social Security income taxable. It also might force you to pay higher Medicare premiums thanks to the Income-Related Monthly Adjustment Amount (IRMAA).

Should you forget about waiting until 70 before claiming?

All of the above are drawbacks to waiting until age 70 to file for Social Security benefits. But that doesn't mean you shouldn't do so anyway.

There are real advantages to waiting to file. In essence, Social Security is one giant inflation-protected annuity. By waiting until 70 to claim, you create a much larger guaranteed monthly payment for yourself.

In addition, Social Security's annual cost-of-living adjustment (COLA) is larger for those whose monthly payments are already bigger.

There is no single right answer as to whether it is wise to wait until 70 to claim your benefits. If you are unsure of the best path forward, consult with a financial advisor.

Bottom line

Delaying claiming your Social Security benefit until age 70 can put extra cash in your pocket. But that doesn't mean this strategy does not come with some potential downsides.

Consulting with a financial advisor, tax professional, or other money expert can help you determine whether this is the right move for you.

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