If you’ve even casually thought about your retirement plans, you’ve probably been bombarded with the common advice: wait until age 70 to start taking Social Security benefits. On paper, this sounds like a good idea because you’ll get the highest possible monthly payment. But the best-laid plans that look terrific on paper can sometimes fall apart in real life—depending on your circumstances. And delays in receiving Social Security benefits are no exception.
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According to D’Andre Clayton, founder of Clayton Financial Solutions, deferring payments isn’t always the wisest move. In certain situations, it may even cost you. Clayton spoke to GOBankingRates as part of the Top 100 Money Experts series to explain why you shouldn’t automatically follow the usual advice on when to claim payouts.
Clayton has seen clients who were determined to wait until age 70 to claim benefits face a harsh reality: Sometimes they don’t live to claim or fully enjoy those benefits. He calls it a “tipping point.”
“The bigger consequence is not being able to survive long enough to break even. For example, if you waited until age 70 instead of age 65, your break point would be 81 or 82,” he said. “Here’s the problem: the average life expectancy for men is 75.8 years, and for women it’s 81.1 years.
In other words, there’s a good chance that waiting until age 70 might not be worth it for everyone.
Delaying benefits can also backfire when a spouse dies early, Clayton explained.
“A survivor can lose their Social Security check and then enter a higher income-related monthly adjustment amount (IRMAA) due to required minimum distributions or capital gains, so the net income advantage evaporates,” he said.
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Accepting the traditional view that you have to wait until age 70 to start receiving Social Security benefits could be missing out on the opportunity to invest earlier or use those funds strategically.
“Between age 62 and 70, those deferred payments could have been invested in Roth accounts, Bitcoin or anything else that could provide more than a deferred benefit,” Clayton said.
In weighing the conventional approach of requiring Social Security at 70 and prior receipt of benefits and their investment, Clayton also considers the overall longevity of the program itself.
“We also have to be realistic that there will be a point for Social Security where the Disability Insurance Trust Fund will be depleted,” he said. “I don’t believe this will mean the end of Social Security — it’s too embedded in society — but it’s possible that the waiting amount, or even the guaranteed waiting increase, could be adjusted to keep Social Security solvent.”
You can essentially give up years of potential for a “guaranteed” raise that will never fully materialize.
Clayton adds that many people forget that Medicare premiums are automatically deducted from their Social Security benefits, meaning their net benefit remains after health costs. If your income increases due to required minimum distributions, capital gains, or part-time work, your IRMAA surcharges can increase your Medicare Part B and D premiums by hundreds of dollars per month.
“Heaven forbid you didn’t plan properly, and these things move your income into another tax bracket,” he said. “It’s a tax on two sides, one you can see clearly, and the other is a hidden tax on your retirement.”
Clayton cautions that if you experience these higher IRMAA additions, you will no longer be protected by the hold harmless provision, which prevents Medicare premiums from reducing your net monthly benefit.
“With the cost-of-living adjustment (COLA) at 2.5% and the Medicare Board projecting consistent inflation in future Medicare Part B premiums to average 10% per year until further notice, the harmless provision could become your Social Security lifeline,” he said.
He notes that making a statement earlier can help you more strategically manage these key boundaries. Taking Social Security at 65 instead of 70 can give you predictable income sooner, which will allow time for a Roth conversion or annuity income before the IRMAA brackets tighten.
Medicare and Social Security are financially tied, he said. “You can’t plan one without the other.”
For Clayton, the best time to take Social Security benefits is one that fits your individual retirement goals and tax strategy. While each client is unique, he has developed a core approach that realistically models the value of Social Security.
In developing this model, he considers the following factors:
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IRMAA Tiers and Expected Premium Inflation
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Minimum distribution (RMD) time and tax rate shift required
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Longevity probabilities based on medical history
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Personal choice – whether the client wants guaranteed income now or later
The “optimal age” is rarely 70 or 62; it’s the point where lifetime disposable income is at its highest after taxes and health care costs,” he said. “I call it the behavioral loss — where math and thinking meet.
To create a balanced retirement plan, it is best to consult with a qualified financial advisor. Together, you can determine the best time to start receiving Social Security benefits, and don’t automatically assume that age 70 is your best bet.
This article is part of GOBankingRates Top 100 Money Experts series in which we spotlight expert answers to the biggest financial questions Americans ask. Have your question? Share it in our hub and you will be entered for a chance to win $500.
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This article originally appeared on GOBankingRates.com: I’m a Retirement Planner: Here’s Why Delaying Social Security Until 70 Could Be Costing You
