There are many factors that go into deciding when you should begin taking Social Security benefits, and while delaying the checks until full retirement age means a fatter payout each month, there are also other lesser-known benefits to be had.
It’s a tough decision. According to a recent study, only 4% of retirees claim benefits at the most financially lucrative time, leading to roughly $111,000 in losses per household.
Full retirement age is 66 or 67 for most Americans, and claiming any time before that can mean a reduction of your monthly benefits by as much as 30%, according to The Motley Fool. Generally, for every year that you wait to start Social Security, you can expect around an 8% gain in benefits from ages 62 to 70.
That’s a nice chunk of change. Here are three other perks that could be worth delaying your Social Security until full retirement age, per The Motley Fool:
1. You’ll avoid the retirement earnings test
Arguably the best reason to hold off on taking your Social Security retired-worker benefit until your full retirement age is that it’ll mean completely avoiding the retirement earnings test.
The retirement earnings test allows the SSA to withhold some, or all, of your benefits if you exceed a certain income level and have not yet reached your full retirement age (which the SSA often calls a “normal retirement age”). People who have begun taking their payout before their full retirement age, and who won’t reach their full retirement age this year, are only allowed to earn up to $17,640 ($1,470 per month) in 2019 before withholding kicks in. For each $2 in earnings above this level, $1 in benefits can be withheld.
If you’ll reach your full retirement age in 2019, but have yet to do so, you’re allowed to earn up to $46,920 ($3,910 per month) before withholding begins. In this instance, $1 in benefits is withheld for every $3 in earnings above this threshold.
The good news is you don’t lose these benefits for good. Rather, you’ll receive these withheld benefits back in the form of a higher monthly payout after you reach your full retirement age. But the point is that the retirement earnings test doesn’t apply to any beneficiary who has hit full retirement age. Simply waiting until then to claim benefits means never having to worry about the SSA withholding a dime of your benefit (unless you want them to for tax purposes).
2. Your spouse will have the opportunity to max out the survivor benefit
Another under-the-radar reason to consider waiting until at least your full retirement age is that it’ll potentially put your significant other on better financial footing if you pass away first.
We often think of Social Security as a wholly personal decision — and to some extent it is. Our work history, earnings history, birth year and claiming age are what’ll determine what we bring home each month in benefits. But if you’re married, or happen to have young children, then your claiming decision is actually more of a family affair. Your claiming decision can be especially important if you’re the household breadwinner.
For example, if you wind up taking your retired-worker benefit as early as possible (at 62), your monthly benefit is permanently reduced. The concern is that, should you pass away before your significant other, your spouse’s survivor benefit would be based on your reduced monthly payout. By waiting until your full retirement age and netting 100% of your due monthly payout, you’ll be ensuring that your spouse has the opportunity to maximize the survivor benefit.
Just keep in mind that survivor benefits only come into play when the monthly payout of the survivor benefit is higher than surviving spouses would receive from their own work and earnings history.
3. You may owe less in taxes
A third under-the-radar reason to consider your full retirement age as the green flag to take benefits is that waiting a few extra years could actually reduce your tax liability.
According to The Senior Citizens League, roughly half of all senior households owe some level of federal tax on their Social Security benefits today. Not to mention, 13 states also tax Social Security benefits to some varied degree. Since the income thresholds associated with both tiers of the taxation of benefits haven’t been adjusted for inflation in decades, the number of retired workers affected by this tax is only expected to increase over time.
By holding off on taking benefits for a few years, you’re reducing the aggregate amount of tax you may owe while in your early to mid-60s. Arguably, in terms of importance, a lower tax bill pales in comparison to securing the financing footing of your spouse. But it’s nevertheless a valid reason to consider waiting.
The only question left to ask yourself is whether waiting until your full retirement age makes sense.