70 is the new 50, right? That could be a good thing or a bad thing, depending on your perspective. I’m taking the optimistic view that involves delaying old age, and Social Security, for as long as possible.
I can’t exactly control the aging process, but I can choose when to claim my Social Security benefits. The timing is important, because when you claim helps determine the monthly benefit you receive. You can claim as early as age 62 or as late as 70. There’s also a major milestone within that range called full retirement age (FRA), based on the year you were born. I was born in 1972, which means my FRA is 67.
At FRA, we qualify for our full Social Security benefit as calculated from our earnings history. If you claim before FRA, your monthly benefit goes down. Claiming after FRA gives you delayed retirement credits, which increase your monthly benefit.
In theory, claiming early, late, or right at your FRA shouldn’t impact the cumulative Social Security benefits you receive over your lifetime. Claiming early gives you a longer stream of lower payments, and claiming late gives you a shorter stream of higher payments. Both streams should come to the same total lifetime benefit.
If lifetime benefits were really important, you could argue that it’s best to claim as early as possible. You ultimately end up with the same amount, but you can enjoy the income sooner.
My lifetime benefit doesn’t matter to me
The thing is, my lifetime benefit is irrelevant to me. Here’s why: I won’t know my lifetime Social Security benefit until I’m on my deathbed. And at that point, who cares? It might be fun to know how much more or less I could have received by timing my claim differently, but I’m not diving into spreadsheets when I should be saying my final goodbyes. Even asking a future Siri or Alexa to run those scenarios seems like a waste of my last breath.
What does matter is my quality of life in those final years. And in my view, quality of life is affected more by my monthly Social Security benefit than my lifetime benefit.
Quality of life
For me, quality of life hinges on financial freedom. I don’t require a big house or lots of fancy stuff. But I do like to eat out, share adventures with family, and generally try new things. I’m not interested in being stuck at home making sandwiches and watching Hulu. I’d rather move into a small place where living costs are low, in exchange for a higher entertainment budget (which I’ll probably spend on road trips).
Realistically, Social Security benefits alone won’t fund that freewheeling lifestyle, no matter how tiny my house is or how long I wait to collect. My budget in those later years will include other sources of income, and Social Security will be more of a bonus than a primary income stream. Fortunately, my husband and I have 401(k)s, IRAs, and other investments to lean on. And as a writer, I have a lower risk of aging out of my job.
My relationship with work
If I hated my work, I’d surely be counting the days until I can claim my Social Security benefits at age 62. But I love creating content. It brings me mental stimulation, fulfillment, and flexibility — three things I should still value in 20 years.
That’s why I don’t feel any pressure to stop working. And if my desire to work holds up, I’m definitely not claiming Social Security before my FRA. If I do, some of the income I earn before age 67 will reduce my benefits. Under the current rules, Social Security deducts $1 from your benefit payments for every $2 you earn above the annual limit. In 2020, that annual limit is $18,240.
A different formula applies for income earned in the year you reach FRA. At that point, your benefits get reduced by $1 for every $3 earned above a higher limit. In 2020, the higher limit is $48,600, and only the earnings before your birthday count.
Once I reach FRA, earnings don’t affect my benefits at all. I could keep working and receive my full Social Security benefits at the same time.
My life expectancy
There’s one more factor I considered in my claiming strategy, and it’s life expectancy. Social Security’s life expectancy calculator tells me I’ll live to be 85.2 years old. But that estimate is based only on my birthdate and gender. Other life expectancy calculators use lifestyle and health information to come up with their figures. Based on the most optimistic of them, I could reach 97!
Given that long life expectancy, it makes sense for me to wait until 70 to claim my maximum Social Security benefit. I figure I’ll definitely still be working at 67. And what’s another three years? Thanks to delayed retirement credits, my benefit goes up by 8% annually if I wait it out.
That’s a 24% increase over three years, plus a nice boost to my entertainment budget. And if those life expectancy calculators are accurate, I’ll still have 25 to 30 more years to enjoy it.
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