HomeMarket NewsThe Perils of Social Security: Financial Risks of Claiming at Age 66

The Perils of Social Security: Financial Risks of Claiming at Age 66

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Waiting to apply for Social Security until your full retirement age is a common choice for many, especially for those with a target age between 66 and 67 in 2024. This strategy serves as a middle ground between claiming early at 62 and delaying until benefits peak at 70, allowing you to avoid early penalties while maximizing spousal benefits.

However, there exists a darker side to claiming Social Security at 66. Here’s a closer look at the financial downsides.

Two Social Security cards on top of a pile of cash.

Image source: Getty Images.

Reap More Rewards by Delaying

Although waiting until age 70 means an additional four-year wait, it often results in higher lifetime payments compared to claiming at 66. Each month of delay beyond full retirement age increases your Social Security check by about 0.67%. For those born in 1957, with a full retirement age of 66 1/2, this delay could add up to a 28% increase in monthly benefits. Similarly, individuals born in 1958, with a full retirement age of 66 and 8 months, could see a boost of 26.67% each month.

Certainly, you must live long enough to justify this delay. With data showing the average life expectancy of a 65-year-old at nearly 84 years, delaying benefits until the break-even age of 82 1/2 can be a wise move for most 66-year-olds in decent health.

An exception exists for those planning to receive spousal or survivor benefits, as there is no added benefit for delaying beyond full retirement age for this group. In such cases, claiming at full retirement age usually proves most advantageous.

Consider Your Spouse’s Future

High-earning individuals who pass away before claiming Social Security could leave their surviving spouses with significantly reduced benefits. If your spouse is eligible to claim 100% of your full retirement age benefit after your passing, delaying benefits can ensure they receive the maximum monthly amount. The survivor benefit replaces the spouse’s own benefit, preventing double-dipping and providing more financial security for your loved one.

For those concerned about providing support to their families posthumously, delaying benefits to secure the highest monthly payout makes practical sense.

Medicare Costs Loom

For retirees aged 65 and above who are no longer employed, Medicare enrollment becomes essential for health coverage. While most retirees are automatically enrolled once they start receiving Social Security benefits by 65, those waiting until at least 66 must manually enroll in Medicare Part B.

Moreover, retirees delaying benefits past 65 must cover their Medicare premiums themselves, as they won’t have benefits checks to deduct premiums from. In 2024, Medicare Part B premiums stand at $174.70 per month, with higher costs for those with incomes exceeding $103,000 ($206,000 for joint filers).

Individuals still working with employer-sponsored insurance need not worry about Medicare until retirement. However, for retirees deferring Social Security until full retirement age, budgeting for Medicare expenses is crucial, given its potential impact on finances.

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The opinions expressed are solely those of the author and may not reflect the views of Nasdaq, Inc.

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