Delaying Social Security benefits may not make sense for several reasons, including the risk of receiving less total income if one does not live very long, the need for income if unemployed or forced into early retirement, health concerns that may limit lifespan and enjoyment of benefits, and the possibility of missing out on benefits if savings are insufficient to cover expenses until the delayed benefit age. Additionally, factors like tax implications, changing life circumstances, and the opportunity cost of waiting can influence whether delaying benefits is the best choice.
Key Reasons Delaying May Not Make Sense
- Risk of Lower Total Income: If you delay claiming benefits but have a shorter lifespan, you might end up with less total Social Security income compared to starting earlier.
- Unemployment or Early Retirement: Losing a job late in the career or health issues forcing early retirement may necessitate claiming benefits sooner to avoid financial strain and reliance on savings or debt.
- Health Concerns: If health is deteriorating, delaying means potentially fewer payouts and missed opportunities to enjoy life experiences funded by Social Security.
- Insufficient Savings: Without adequate savings to bridge the gap, delaying benefits can create a cash flow problem, negating the advantage of increased monthly payments later.
- Tax and Policy Risks: Delaying may increase the taxation of benefits and Medicare premiums (IRMAA), and policy changes could reduce future benefits, adding risk to waiting.
- Opportunity Cost: There is a possibility that investing benefits received earlier could yield higher returns than the increases gained from delaying Social Security, especially amidst sequence of returns risk.
When Delaying Still Makes Sense
- Generally, individuals expected to live longer than average, with good health, plus sufficient savings to cover early years without Social Security, may benefit financially from delaying up to age 70.
In summary, while delaying Social Security can increase monthly benefits, it does not automatically guarantee a better financial outcome for everyone due to life expectancy variability, health issues, income needs, and other risks. Each person's circumstances must be evaluated carefully to determine the best timing to claim Social Security.
