Only 8% of social security beneficiaries prepare for the maximum monthly benefit. Should I?

Social Security serves as an important source of income for millions of retired Americans. And there’s a pretty easy way to set yourself up with a more generous monthly lifetime benefit.

All you have to do is delay claiming Social Security past your full retirement age, which is 67 if you were born in 1960 or later. For every year you delay your claim until age 70, your monthly benefit gets an 8% boost.

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But perhaps surprisingly, an overwhelming majority of Social Security recipients don’t plan to delay their claims. A recent Schroders survey found that only 8% of respondents plan to wait until age 70 to sign up for benefits.

For some people, not withholding social security is a big mistake. But it’s important to figure out if this is true for you.

A personal choice based on personal factors

The advantage of deferring social security is clear. If you claim Social Security at age 70, you’ll get the maximum monthly benefit you’re entitled to based on your individual earnings history.

But by waiting to receive benefits, you risk ending up with a lower lifetime Social Security income. This is because your higher monthly payments come at the cost of fewer individual payments. And you have to live a pretty long life, not only to break even, but to come out ahead.

That’s why it’s important to consider the state of your health when deciding whether or not to defer Social Security. If your health is good and you’re likely to live a long life, then forgoing Social Security could put more money in your pocket than filing at a younger age.

But the opposite is true when your health is poor. In this case, you may lose out financially by claiming Social Security at age 70 or some other time after full retirement age, despite earning a higher monthly salary. So you’ll need to think carefully about whether you want to take that risk.

Think about your financial needs

In addition to considering your health, another thing to think about in the context of delaying Social Security is whether you need to. The average retirement savings balance among Americans ages 65 to 74 was just $200,000 in 2022, according to data from the Federal Reserve. This is not a very large nest egg to fall back on.

If your savings look similar, then it’s easy to make a case for delaying Social Security and increasing those monthly benefits. But if you have $1.5 million in your IRA or 401(k), then you may have plenty of money to cover your essential retirement expenses. And in that case, it might pay to claim Social Security early so you can enjoy benefits in the early stages of retirement, when you may have more energy to do the things you’ve always dreamed of.

Clearly, there can be a big advantage to filing Social Security claims at age 70. But there may be a reason so few Americans plan to wait that long. So before you decide that deferring until age 70 makes sense for you, look at the big picture and make sure it’s a wise decision.