This Social Security Timing Strategy Could Pay Off Big

Have you thought about when you are going to claim Social Security and why?

Since the most popular age to claim Social Security benefits is 62, you may be planning to start your benefits when you first become eligible. Or you may simply be planning to claim when you're ready to leave work, or not really have a designated age in mind at all.

This may not be the best approach for your retirement planning, though. In fact, claiming your benefits without a clear plan could end up being a huge mistake. That's because there's one claiming strategy that gives you the best odds of getting a big payoff. Here's what it is.

This Social Security claiming strategy increases monthly income

If you want to make a financial move that guarantees you a larger monthly Social Security check and gives you good odds of getting more lifetime benefits, the right Social Security claiming strategy is obvious. You should wait as long as you can, and ideally until you are 70.

Delaying until 70 may seem really difficult, especially if you don't have a lot of money in retirement plans to support you while you wait. But it can have a big payoff because a delayed claim results in a much higher monthly benefit.

For each month you claim benefits before your full retirement age, you shrink your checks. The reduction adds up to a 6.7% benefits cut in the first three years and a 5% cut for years prior, for a total of a 30% reduction in benefits if you claim at 62 instead of 67. Waiting at least until FRA allows you to avoid these penalties.

Delaying a little longer until 70 does even more for you. Late filing credits raise benefits by 2/3 of 1% per month or 8% per year. That's a lot of extra money to get, especially given that these benefits are paid for your whole life and have inflation protections built in that come in the form of cost-of-living adjustments. Maximizing guaranteed income is a smart strategy.

So, how much of an impact can this claiming strategy make? Let's say you were on track to collect $2,000 at your full retirement age of 67. If you claimed at 62, you'd receive $1,400, but if you claimed at 70, you'd collect $2,480. The difference in your monthly income totals $1,080.

Odds are high you'll also increase your lifetime income

It's clear that you can increase your monthly checks by delaying your Social Security benefits claim. But you do have to give up years of payments to do it. So, in order to end up better off, you need to be paid the higher benefit for long enough to break even for the missed benefits, and then you'd need to keep collecting.

The odds are pretty good that's going to happen, though. Multiple studies have shown that the majority of retirees end up better off when they claim benefits at 70 instead of at 62. In fact, 57% of retirees ended up with more lifetime wealth by waiting until 70, and those who claimed early were leaving around $111,000 per household in funds untapped.

The reason for this is simple. The Social Security formula of early filing penalties and delayed retirement credits has not changed, even as life expectancies have gotten longer. So while someone who claimed early used to get around the same benefits as someone who claimed late if they lived to the average life expectancy, that is no longer the case.

If it is possible, you may want to seriously consider waiting to claim Social Security at 70 -- or at least delaying as long as you can. This approach could have a big payoff that leaves you with a lot more money to enjoy during your later years.