One of the biggest decisions you need to make when you’re headed for retirement is when to file for your Social Security benefits. Should you file early, at your Full Retirement Age (FRA), or delay until age 70 to maximize your benefit? As with most things related to your retirement, it depends on your financial situation.
Delaying Your Benefit Until Age 70
When you delay filing for benefits beyond your FRA, you earn credits that continue to increase your benefit by 8% each year up until age 70. For example, if you were born in 1960 your FRA is age 67. When you wait the extra three years and file at age 70, you’ll receive 124% of your earned benefit.
Your Longevity Comes Into Play
Of course, the advantage of delaying Social Security depends on your potential longevity. If you have chronic health conditions or a family health history that may diminish your life expectancy, waiting beyond your FRA may not be a good idea. Why? Because you may never reach the break-even point. The break-even point is when your total benefits surpass the amount you would have received between your FRA and age 70. For those with an FRA of age 67 the break-even point is approximately age 80.
“As a result, you can spread out taxes you owe Uncle Sam before taxable Required Minimum Distributions (RMDs) kick in at age 73.”
Delaying Social Security May Lead To Spending Down Your TSP
Delaying Social Security may put you in the position of drawing down your Thrift Savings Plan (TSP) to cover your living expenses. This means you’ll lose out on the compound interest these withdrawals can potentially earn. Then again, delaying until age 70 gives you time to spend down your traditional TSP. As a result, you can spread out taxes on your TSP distributions before Required Minimum Distributions (RMDs) kick in at age 73.
Other Factors To Consider
- Social Security is tax-advantaged income: Between 15% and 50% of your annual Social Security income is tax-free while your TSP income is 100% table.
- Your surviving spouse is your only beneficiary: If your spouse predeceases you, no other beneficiaries can receive your Social Security benefit (except eligible surviving children). Meanwhile, in the same scenario, your TSP can be left to your other named beneficiaries.
- Social Security is predicted to run out of surplus funds by 2033. If Congress fails to put a plan in place to correct course, the SSA would only be able to pay 79 cents on the dollar for benefits.
Before you file for Social Security and unknowingly leave money on the table, connect with an FRC® trained advisor.
