Many people expect their living costs to drop in retirement, and while this might be true in certain cases, it isn't always. Healthcare alone can eat up a large chunk of the average retiree's budget, while other expenses, like housing, food, and transportation can really add up.
Since there's a good chance you'll need every penny you can get as a senior, you should know that there's a relatively simple way to pocket an extra $5,000 each year: Hold off on Social Security benefits.
Increasing your Social Security payments
Though you're allowed to claim Social Security as early as age 62, your benefits will take a hit if you start collecting them before reaching your full retirement age. Your full retirement age is based on the year you were born, as shown in this table:
Year of birth | Full retirement age |
|---|---|
1943-1954 | 66 |
1955 | 66 and 2 months |
1956 | 66 and 4 months |
1957 | 66 and 6 months |
1958 | 66 and 8 months |
1959 | 66 and 10 months |
1960 | 67 |
Meanwhile, the actual dollar amount you're eligible for each month is based on your work history, and as long as you wait until your full retirement age to first claim Social Security, you'll get that amount in full.
But just as you'll face a reduction in benefits by taking them early, you'll get a boost in benefits by taking them late. In fact, for each year you hold off on Social Security, you'll increase your benefits by 8%. And while this incentive runs out at age 70, if your full retirement age is 66, you'll get an opportunity to raise your payments by 32%.
In 2017, the average monthly Social Security benefit is estimated at $1,360. If you're like the average recipient, and you delay your benefits four years, you'll increase your monthly payment to $1,795. That's a $435 boost per month, leaving you with an extra $5,220 dollars per year -- forever.
Alternatives to Social Security
Let me guess -- you're probably sitting there wondering how on earth you can afford to hold off on Social Security for so long. The truth is, not everyone can. If you don't have much in the way of savings and you're unable or unwilling to work, then you probably won't manage to hold out for four solid years.
On the other hand, if you're willing to make an effort or get creative, you can find ways to manage without those benefits for a few more years, even if you don't have a lot of savings to tap.
For one thing, if you stay at your job until you reach age 70, you won't need to claim Social Security, because you'll get to collect your regular income. If the idea of working that long sounds unappealing, you should know that according to some studies, working longer could actually lead to a longer life. Not only will working longer allow you to hold off on Social Security, but it will give you a few extra years to sock away some independent cash.
If you loathe your job or don't have the option to stay, you can also look into starting your own business in retirement. According to the Small Business Administration, over 5 million older Americans run their own businesses, and between 2000 and 2007, the number of self-employed workers aged 55 to 64 climbed 52%.
Whether you decide to consult in your former field or pursue a hobby you're passionate about, you can make up for that missing Social Security income by earning the money yourself.
Finally, if you can't or don't want to work, but you still wish to hold off on Social Security to boost your benefits, you might consider selling your home and using the proceeds to pay your living costs in the near term. You should consider this move especially if you don't need as much space, your mortgage isn't paid off, and you can't afford the upkeep.
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Holding off on Social Security isn't an option for everyone. But if you can afford to delay your benefits, you'll reap the rewards for the rest of your life.
