The great thing about Social Security is that you get to decide when you want to claim your retirement benefits.
You become eligible at 62, but your checks get bigger for every month that you put off claiming your benefits, up until the age of 70. In most cases, waiting until 70 is considered the best move — numerous studies have shown that waiting pays off in terms of providing more monthly and lifetime income.
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But what if you planned on delaying your benefit claim until 70, and then you’re diagnosed with cancer at 63? When you were working, you earned more money than your spouse, and the two of you are now retired and living off of investments.
Under these circumstances, you’d be in a very different situation than a healthy retiree due to the fact that your future is more uncertain. With this in mind, you’ll need to make a careful assessment in order to determine what the best move is for you.
Here’s what you need to know.
How cancer may change your Social Security plans
To understand how such a diagnosis might change your decision on claiming Social Security benefits, you need to understand how benefits work.
You can start claiming Social Security benefits as early as 62, but claiming before you reach full retirement age (FRA) will permanently reduce your monthly payments. If you were to wait until your FRA, which depends on your birth year, you can then claim your full benefits.
For those born in 1960 or later, the FRA is 67 years old. If you were to claim benefits before FRA, your benefits will be reduced by roughly 6.7% for every year that you claim early, up to three years. There’s also a 5% reduction for every year that you claim early beyond three years.
But on the other hand, if you were to wait until after your FRA to claim your benefits, your checks will increase by 8% for each year that you delay beyond FRA, until the age of 70.
This system was designed to equal out lifetime benefits for early and late claimers. Claiming early means you will receive lower monthly payments for a longer period, while delaying your claim means you will receive higher monthly payments for a shorter period.
Experts believe most people will be better off by delaying their Social Security claim. For those who delay their claim and live a healthy life in retirement, the higher monthly payments often add up to more than the amount of income they missed out on by not claiming sooner.
But if you have cancer, your future may be more uncertain. With this in mind, it’s worth doing the math to get a good look at your options.
Read more: How much cash do you plan to keep on hand after you retire? Here are 3 of the biggest reasons you’ll need a substantial stash of savings in retirement
A quick look at the numbers
Let’s say your standard benefit at full retirement age (67) is $2000 per month. If you were to claim your benefits at 63, four years before your FRA, your checks would be reduced by roughly 25% — three reductions of 6.7%, plus another reduction of 5%, as per the early claim rules detailed above. That would bring your monthly benefit check down to $1,500.
If you waited until 70 instead of claiming at 63, you’d be giving up seven years of $1,500 monthly benefit checks, which adds up to $126,000 during that seven-year period.
But in waiting until 70 to make your claim, your $2,000 full benefit would be increased by 24% — 8% for each year that you delayed your claim beyond FRA. That would increase your monthly benefit checks to $2,480, which means you’d collect $980 more per month than the amount you would have received if you claimed your benefits at 63.
At $2,480 per month, it would take 51 months — four years and three months — to earn $126,480, which is slightly higher than the $126,000 you would have earned over seven years if you claimed your benefits at 63. This means you’d have to live well past your 74th birthday to receive the $126,480 that you’d be entitled to if you made your claim at 70.
If you don’t think there’s a reasonable chance that you’ll live to be 74, then an early claim on your Social Security benefits may be your best bet. However, if you believe your diagnosis will allow you to live to 74 and beyond, delaying your claim until 70 could be the more lucrative option.
Other things to consider
Of course, there are other things to think about when deciding when to make your benefits claim.
For starters, survivor benefits are worth consideration, especially if you were the high earner in your marriage. Your spouse’s survivor benefits will be based on one of two factors:
- The amount you were receiving when you died, if you had already claimed Social Security
- The amount you would have been entitled to receive based on your age and earnings history if you hadn’t claimed benefits
If you were to shrink your checks by claiming your benefits early — as opposed to waiting and growing your checks as much as possible — your spouse will get less Social Security for the rest of their life after you die. This is a strong argument for delaying your benefit claim.
On the flipside, you may need to claim Social Security early to help you cover the costs of your treatment, or to spend the money and enjoy life before you pass away. These factors are also worth considering, as you don’t want to spend your last few years worrying about not having enough money.
Ultimately, if you don’t need the money now, you’re probably better off delaying your claim to max out both your benefit checks and your survivor benefits, since there’s a good chance your spouse will end up relying on them.
However, if you would face financial stress by not claiming Social Security now, you can claim your benefits and make use of the money while you still can.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.