One of the most important retirement decisions you’ll make is when to claim Social Security. You can start as early as age 62, wait until your Full Retirement Age (FRA), or delay benefits until age 70 to receive a higher monthly payment. The right choice isn’t universal; it depends on your overall financial picture, health, and retirement income strategy.
The Impact of Delaying Until Age 70
If you postpone claiming Social Security beyond your FRA, your benefit grows by 8% per year through age 70. For example, someone born in 1960 has an FRA of 67. By waiting until age 70, that individual would receive 124% of their earned benefit, creating a larger guaranteed income stream for life.
Why Longevity Matters
Delaying benefits only pays off if you live long enough to reach the break-even point, the age when the total benefits from delaying exceed what you would have collected by claiming earlier. For someone with an FRA of 67, that break-even age is roughly 80. If health concerns or family history suggest a shorter life expectancy, delaying may not be the most effective strategy.
The TSP Trade-Off
Waiting to claim Social Security often means relying more heavily on your Thrift Savings Plan (TSP) to cover expenses in the meantime. This can reduce future growth due to lost compounding. However, delaying Social Security can also be an opportunity to strategically draw down traditional TSP assets, potentially spreading out taxes and reducing the impact of Required Minimum Distributions (RMDs) beginning at age 73.
Additional Considerations
- Tax treatment: A portion of Social Security income may be tax-free, while TSP withdrawals are generally fully taxable.
- Survivor benefits: Social Security benefits generally pass only to a surviving spouse, while TSP assets can be left to multiple named beneficiaries.
- Program solvency: Current projections show Social Security trust funds facing shortfalls by 2033, which could result in reduced benefits if no legislative changes are made.
Before choosing when to file, and potentially leaving money on the table, it’s worth reviewing your options with a Federal Retirement Consultant (FRC®) who can help you evaluate how Social Security fits into your broader retirement plan.
