'I'm in my peak earning years': I work full time and will soon turn 67. Should I wait until I retire at 70 to collect my Social Security?

By Quentin Fottrell

'My health is good and, while I do not have a firm retirement date in mind, I am thinking of retiring in late 2024 or early 2025.'

Dear Quentin,

I will turn 67 next January, and I am still working full time. I have not yet applied for Social Security. I am in my peak earning years and do not need Social Security to help with living expenses. My thought was that I would wait until I retire or reach age 70 (whichever comes first) and start collecting Social Security then, when my monthly benefit will be greater.

My health is good and, while I do not have a firm retirement date in mind, I am thinking of retiring in late 2024 or early 2025. Should I wait on Social Security, or go ahead and start collecting now? A friend told me that I should start taking Social Security now even though the monthly benefit will be lower and invest those funds. I'm not sure which is the best move.

Not-Yet-Retired

More by the Moneyist: My 8-year-old son was given $35,000 in gold bars. Do we hold onto them -- or sell and invest the money?

Dear Not-Yet-Retired,

The Grim Reaper would say, perhaps menacingly, "Claim today! You never know what will happen tomorrow." The Moneyist says wait.

That's the short answer. Now, here's the long one:

If you continue to work while receiving Social Security benefits at 67, you will not only receive lower monthly payments, but you will continue to pay Social Security tax on your earnings, and your benefits are taxed at a higher rate. The age at which you "break even" should not be the only basis for what you choose to do; your decision depends on a range of factors, including your longevity, income, marital status, and predictions for your cost-of-living adjustment (COLA).

Most people take Social Security when they are eligible for their full benefits at age 66 -- 28.4% of men and 26.5% of women. That's according to data from the Social Security Administration (SSA). Only 8.4% of men and 9.3% of women started taking their benefits between the ages of 70 and 74.

The SSA encourages people to delay taking Social Security by offering a bump in payments if they wait. The SSA reminds people who delay their retirement to remember to sign up for Medicare at age 65.

In fact, research published last year by economists at the Federal Reserve and Boston University recommended that "virtually all" workers aged 45 to 62 should wait until after 65 years of age to draw their Social Security benefits, and -- here's the kicker -- more than 90% should hold out until they are 70.

"Americans are notoriously bad savers," the researchers concluded. "Large numbers are reaching old age too poor to finance retirements that could last longer than they worked."

Here's a recap about how it works: If you were born in 1957 (given that you will be 67 years of age in January) your maximum retirement benefit will be 128% of your full retirement benefit at 70 years of age. This assumes FRA starts at 66 and 6 months.

For people born in 1960 or later, their full retirement age is 67. The earliest they can claim is 62, but they get reduced benefits; at that age, you get 36 months of delayed retirement credit, which increases every month past the full retirement age until you reach 70.

If you were born in 1955 and delay Social Security until age 70, you get 130.7%; your FRA is 66 and 2 months, and you get 46 months of delayed retirement credit. If you were born between 1943 and 1954 and delay until age 70, you get 132%; your FRA is 66 and you get 48 months of delayed retirement credit.

The 'break-even point' by retiring at 70 vs. 67

So how long will it take for you to break even -- that is, earn back what you missed out in those three years between 67 and 70? If you delay benefits until you reach 70, it takes just over a decade to break even with benefits.

But you also need to take the cost-of-living adjustment into account when making your decision; an 8.7% COLA began in January 2023. That was the highest Social Security COLA in more than 40 years amid rising inflation.

COLA for Social Security will rise 3.2% in 2024, the Social Security Administration said Thursday. The average COLA increase over the last 20 years is 2.6%, according to the Senior Citizens League, a pro-senior think tank. COLA is not a raise -- it merely helps the roughly 67 million Social Security beneficiaries catch up with inflationary pressures.

If you took your Social Security early and put it in a high-yield savings account, you would get an interest rate of closer to 4.5% to 5%.

Still, John Piershale, a wealth adviser at Piershale Financial Group in Crystal Lake, Ill., also leans towards waiting another three years before collecting.

"By delaying, you don't pay income taxes on that benefit," Piershale adds. Plus, delaying your retirement age lowers your modified adjusted gross Income (MAGI). "This may help you in other areas such as avoiding Medicare income related monthly adjustment amounts (IRMAA) thresholds," he adds.

Related: Should I claim Social Security at 62 or 67?

Social Security is insurance against a long life

Social Security is an insurance policy against living longer than you think. The best time to start taking Social Security is when you stop working. That's when you will need it the most. Some people will advise you to take your benefits at 67, pointing to all the things that can go wrong over the next 10 years.

If you are more optimistic, you're healthy and have "good genes" -- that is, your parents lived to a long age -- and you don't smoke or drink to excess or engage in other activities that could shorten your life, you may feel OK waiting until you are 70. If you have a younger spouse who will have fewer benefits than you, they will benefit from you waiting and taking higher benefits (though calculating that too is complicated).

It makes sense to wait if you also have a healthy income stream and, perhaps, a personal retirement pension (like a 401(k) or IRA). The SSA also provides a life-expectancy calculator. Given the life expectancy rate in the U.S. -- which we can use as a rough guide -- you would probably be better off taking your Social Security at 67, rather than rolling the dice on living to 90, and above. But you know your family history better than me.

Delay your benefits until you reach 70

Your two options: take it at 67 and, assuming the 2023 average $1,845 Social Security benefit at that age, put that cumulative $66,420 into CDs or a high-yield savings account over the next three years, and use the proceeds as a "welcome to retirement" nest egg to take a vacation of a lifetime, or get that kitchen renovation.

But is it the smartest financial decision to take it in January rather than waiting until you turn 70? For all of the above reasons, I don't think so. Is it the smartest life decision? That will vary from person to person. There are no guarantees that we will be here at 80 or, indeed, 90, and in good health.

Tim Doehrmann, president of Eagle Ridge Health Advisors in Morton, Ill. "If people are healthy, and can afford it, I recommend they push Social Security until age 70 to get the highest amount they can," he says.

"It is also common for many retirees to have a pre-tax account in the form of a 401(k), IRA, etc. that they've contributed to but still owe ordinary income tax on," he adds. "Often, you can reduce lifetime tax liabilities by filling up tax brackets with Roth Conversions during the gap years between retirement and required minimum distributions."

The beauty of Social Security is that it's an inflation-adjusted annuity for the rest of your life, so if you think you're going to live a long time -- and most people do underestimate their longevity -- it's nice to have. So you're (probably) better off waiting. The good news: you have the luxury of being in a comfortable financial position whatever you choose.

Related: How many more years will you live? Here's how to make an educated guess.

You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com, and follow Quentin Fottrell on X, the platform formerly known as Twitter.

Check out the Moneyist private Facebook group, where we look for answers to life's thorniest money issues. Post your questions, tell me what you want to know more about, or weigh in on the latest Moneyist columns.

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Previous columns by Quentin Fottrell:

Should I put my fiancé's name on the deed to my $560,000 California home after we marry?

'Buy a yacht,' he told me. My fiancé, 67, is cutting his kids out of his will -- and leaving everything to me. Should I be suspicious?

My uncle persuaded my ailing grandmother to cut everyone else out of the family trust. Do we have a case against him?

-Quentin Fottrell

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