As retirement nears, you're likely to find yourself faced with some very tough decisions. Where should you live during your senior years? Should you own a home or rent one? And how should you invest your savings?
Another big choice you'll need to make is when to sign up for Social Security. In that regard, you have multiple options.
You're allowed to file for Social Security at any point starting at age 62. However, full retirement age (FRA) is when you're eligible for your complete monthly Social Security benefit as determined by your individual wage history. FRA is 66, 67, or somewhere in between, depending on the year in which you were born.
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There's also the option to delay your Social Security claim past FRA. For each year you do, up until age 70, your monthly benefit will get a permanent 8% boost.
Technically, there's no such thing as a final age to sign up for Social Security. But since you can't accrue the delayed retirement credits that reward you financially past age 70, there's really no reason to file for Social Security beyond that point. As such, 70 is usually considered the latest or oldest age to sign up.
You may be inclined to claim Social Security at 70 to lock in the highest monthly benefit possible, based on your personal wage history. But here's why you may want to sign up a lot sooner.
When you're worried you won't live long enough to come out ahead financially
Claiming Social Security at age 70 will put more money in your pocket on a monthly basis. But it won't necessarily do so on a lifetime basis.
Remember, when you delay Social Security, you get larger payments but fewer of them. And if you end up passing away prematurely, you could end up with less money from the program in total by waiting until age 70 to first start getting that money.
Let's say the monthly benefit you're entitled to at an FRA of 67 is $1,800. Pushing your claim back to age 70 will give you $2,232 a month, instead, or a monthly increase of $432 and roughly $5,200 more per year.
But it will take you until age 82 1/2 to break even on your delayed filing -- in other words, to collect the $334,800 in total that you'd get by claiming Social Security at 67. If you live beyond 82 1/2, a delayed filing will work out well for you. But if you pass away sooner, you'll lose out on lifetime income, to some degree. And the earlier you pass away, the more Social Security you'll miss out on.
Generally speaking, people don't have the capacity to predict their own life spans. But if you have health issues or a family history of previous generations passing away at relatively young ages, you may want to err on the side of caution and claim Social Security at FRA or even sooner.
When you're miserable at work and it's harming your health
What's another reason to claim Social Security long before age 70? It could be your ticket to more near-term happiness and improved health.
Some people push themselves to work until age 70 and claim benefits then. But if you're in a job that's stressful and bad for your health (whether physical or mental), an earlier Social Security filing could be your ticket to a faster escape from that situation.
Of course, it's not easy to just up and quit a stressful job and fall back on Social Security when you're short on retirement savings. But if you're sitting on a healthy nest egg, it could pay to claim Social Security well before age 70 and remove yourself from a workplace that's making you miserable.
The decision to claim Social Security is one to consider very carefully. You may, despite the drawbacks of a delayed filing, come to the conclusion that signing up for Social Security is the right way to go. But do consider that claiming Social Security at 70 could mean ending up with less lifetime income and remaining trapped in a job that has truly unfavorable health-related consequences.
