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Why Delaying Social Security Is More Lucrative Than Ever


Americans are contending with rampant, pandemic-ignited inflation, which is expected to clock in at 10.6% for November compared to a year ago. To counter this high-inflation environment, Social Security payments are set to have a massive hike next year.

The annual cost-of-living adjustment (COLA) to Social Security beneficiaries is 8.7% for 2023, an increase that will send an average raise of $140 a month to retirees and others collecting government benefits. It’s the largest Social Security boost in four decades.

That’s a big bump up, especially for the quarter of recipients older than 65 who depend on solely on Social Security as 90% of their income. But though some may be tempted to cash in on more robust payments, that increase is actually one more reason for people nearing retirement to delay claiming their Social Security benefits.

For more help strategizing your retirement and Social Security draw-down plan, consider matching with a vetted financial advisor for free.

Workers who’ve qualified during their years on the job can begin collecting Social Security benefits at age 62, but the payment is a reduced amount from what they can receive when they reach their full retirement age, which is between 66 and 67 years old. But folks who can wait until they hit 70 can increase their benefit amount by 8% a year. For 2022, the maximum monthly benefit for people who start collecting at age 62 is $2,364, but at age 70 it grows to $4,194 – a difference of nearly $22,000 a year.

That COLA adjustment gets factored in to the payment benefit calculations even if you’re not receiving Social Security payments. That means that delaying taking benefits from 62 until 70 gives you eight years of compounded cost-of-living adjustments on your benefit payments.

Of course, the increased benefit amount isn’t the only factor to consider when choosing when to start receiving benefits. Many people who expect to keep working past their full retirement age find they can’t either because they’re physically unable, because they must care for a relative or spouse, or because they’re unable to find gainful employment.

Life expectancy is also another consideration. In order to break event on delaying benefits after full retirement age, the recipient would need to live past age 82. That’s the point where the total amount of benefit payments received becomes more than if the recipient had started collecting at their full retirement age.

While an 8.7% cost of living adjustment is pretty high, it’s hardly the biggest increase Social Security has ever handed out. During the oil shock and recession of the early 1980s, the adjustment was 14.3%in 1980 and 11.2% in 1981. Since the adjustment process began in 1975, there have been three years when no increase was made, most recently in 2015. Since the arrival of the pandemic, the COLA increase was 1.3% in 2020 and 5.9% in 2021.

Delaying benefits also means that Social Security recipients may be able to sidestep taxes. While the benefits themselves aren’t taxed, other retiree income is, including earnings from work and withdrawals from 401(k)s, Individual Retirement Accounts and other savings and investments. The IRS looks at your “combined income” – half of your Social Security benefits plus your annual nontaxable interest income and adjusted gross income – and if that’s more than $25,000 for a single filer this year, you’ll be taxed on half of your Social Security payments. If your combined income is more than $34,000 you’ll be taxed on 85% of your Social Security money. For joint filers, the limits are $32,000 and $44,000.

By collecting a higher Social Security benefit, you may need to take less money out of your investments and savings, which can allow you to reduce or eliminate taxes on your benefits.

The Bottom Line

There’s added incentive to delay your Social Security payments, given the 8.7% COLA for 2023. Workers who qualify can begin drawing down on Social Security at 62, but the payment is a reduced amount from what they can receive when they reach their full retirement age, which is between 66 and 67 years old. If they can wait until age 70, they can increase their benefit amount by 8% a year, all the more robust with the increase in Social Security payments. Of course, there are other considerations to enter into the decision calculus such as your family needs and personal employment situation. It’s often a good idea to enlist the services of a vetted financial advisor to help with your Social Security draw-down strategy.

Tips for Retirement Planning

  • Saving is important but most people aren’t likely to stow away enough to last all of their golden years. Likewise, Social Security can help but it isn’t likely to sustain your current lifestyle. Instead, you will likely need your savings to grow through investments. For help with this, consider working with a financial advisor. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • Taxes can take a big chunk out of your retirement income, depending on where you live. To find out if you should relocate after you hang up your hat, check our story on the best states to retire for taxes.

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