When you’re deciding at what age to claim Social Security, there are advantages to waiting until you’re 70. If you delay until then, you’ll max out the monthly income you can get from the Social Security Administration.
And many people will also end up with more lifetime benefits if they wait until 70 because it’s common to outlive the life expectancies the benefits formula was based on.
Despite these advantages, though, waiting that long to start Social Security is not for everyone. In fact, there’s one really good reason you might want to get your first check long before your 70th birthday. Here’s what it is.
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Claiming your benefits can help preserve your savings
The single best reason to claim Social Security long before 70 is because it can help you to avoid spending too much of the money in your 401(k) or other retirement investment accounts.
It’s not very likely you’re going to be able to work until 70, and the average retirement age is 64 in the U.S.
The problem is, if you retire at 64, you’re going to need money to support yourself for a long time before you max out your monthly Social Security check at 70. And that’s also true if you retire at 65 or 66 — or any other time before your Social Security benefit is as large as it can be.
Without money coming in from the program, you’ll most likely have to rely on your savings. That could be a huge problem if you need more money to live on than your investments can provide at a safe withdrawal rate.
Draining your savings to boost your Social Security benefit isn’t worth it
When you take money out of your retirement accounts, you must be careful you don’t withdraw too much too fast. If you do, you won’t have enough left to earn returns, so your money will stop making money for you. You’ll just be left spending what’s there along with whatever small returns you do manage to earn. And you’ll probably end up with nothing very quickly if you take this approach.
To avoid this, most experts recommend keeping withdrawals of your invested funds to 4% or less in the first year of retirement and then adjusting upward for inflation each year after that. But if you’re trying to cover all your costs without any Social Security benefits, there’s a very good chance you will have to exceed this safe withdrawal rate and take out a lot more money than you should.
In that case, even though your benefits will be higher by having waited until 70 to claim them, Social Security checks alone are not enough to live on. They’re designed to replace only about 40% of pre-retirement income — when you probably need to replace around 80% or more.
Even a Social Security check that’s been maxed out by waiting until 70 to claim it won’t replace 80% of your income.
So if you need to claim Social Security in order to avoid emptying your retirement accounts, you should do it. You are far better off with a smaller check that you can supplement with savings than with a bigger Social Security check and an empty investment account.
