Waiting to Claim Social Security, Can it Boost Your Income? : Action Financial Strategies LLC | New Holstein, De Pere & Cottage Grove, WI

Waiting to Claim Social Security, Can it Boost Your Income?

A recent paper published by the National Bureau of Economic Research, titled “How Much Lifetime Social Security Benefits Are Americans Leaving on the Table,” really gives us another thought on how to collect benefits, or for that matter, waiting to collect benefits.1

Per the study, it found that virtually all American workers ages 45 to 62 should wait beyond 65 to start collecting Social Security;  and even more than 9 in 10 should wait until age 70. According to the article, just over 10% of Americans actually do this. Of course, there are always a small percentage of people that don’t gain from waiting to collect their retirement benefits, and ultimately, when to claim Social Security is still highly dependent on an individual’s situation, and there really is no single claiming strategy that fits all.

However, another significant reason to delay Social Security is because of the cost of living adjustment. In 2023, it was 8.7%.2 This still gets factored into the amount you’re eligible to receive already starting at age 62, and it gets compounded, so each year you hold off on collecting full retirement age -- somewhere between, for most of us, 66 to 67, depending upon when you were born, or beyond -- will make your eventual payout even higher. The benefit increase stops when you reach age 70. 

I’ll compare this to 2013, when the cost of living adjustment was only 1.5%. So it does need to be relooked at, because some of the common knowledge still out there is felt that it doesn’t pay to wait to collect Social Security at older ages. But with the new inflation cost of living adjustments, it’s time to do a revisit.

Figuring out how to maximize Social Security is vital, considering it is a benefit that really lasts for the duration of a recipient’s lifetime; and it is adjusted for inflation. And really, the same can’t be said for most  any other resources of income that we have access to when we retire. 

The other benefit of delaying Social Security, especially now with the higher cost of living adjustment, is the tax savings.2 Believe it or not, many recipients have to pay taxes on Social Security income.   

And those who have other sources of retirement income, like 401(k)s or IRAs, might pay as much as 85% of their Social Security benefits subject to taxes.

So holding off on collecting those benefits and ultimately getting a bigger lifetime payout means those retirees won’t have to tap into their personal accounts for as much money.  In turn, the taxable portion of Social Security benefits drop. As mentioned earlier, there still are some people for whom delaying benefits won’t make sense, despite a heftier payout and lower taxes.  It could be those who have a terminal illness or shorter life expectancy, they might want to begin to collect as soon as they can. The only caveat to this, of course, is unless they’re married and concerned about a spousal benefit upon their death.

Lastly, it may be argued that Social Security is on shaky footing. It’s a federal program that is underfunded. Some feel that the benefits could not become fully paid starting in 2025. But if the past is any guide, changes to shore up our Social Security program would likely focus on changing rules for younger people below the age of 45, with years left to work, rather than the soon-to-be retirees.

All of this is worth a good discussion. Looking at your Social Security and revisiting it in spite of the new changes in cost of living adjustments - especially if you’re over the age of 45 - may make sense.

headshot of Bradley

Brian Ruh Owner, Financial Adviser

This material is for general informational purposes only and was produced by Action Financial Strategies, LLC.