Should You Use Savings to Cover Early Retirement Expenses to Delay Social Security?

When it comes to Social Security, many people have the goal of locking in the largest possible monthly benefit. In reality, your goal should generally be to score the highest lifetime Social Security payout.

But if you're in great health and expect to live a long life, and you have a family history of people living well into their 90s, then the two may be one and the same. And if so, delaying Social Security past full retirement age could work to your advantage.

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Social Security's full retirement age is 67 for people born in 1960 or later. But for each year you hold off on filing, up until age 70, your benefits get an 8% boost.

Of course, to make this strategy work, some people resign themselves to a later retirement date. But you may not want to work a few extra years to position yourself to delay Social Security. Or, you may not be able to due to changes in your industry or personal situation.

If you have a nice amount of retirement savings, you may be able to tap your nest egg to cover a few years of expenses without Social Security. That could make it possible to delay your claim and score larger lifetime paychecks as a result.

But is this a smart move? It depends on your situation.

The upside of larger Social Security checks

Locking in a bigger Social Security check each month won't just give you larger payments. It could also give you more peace of mind.

Your IRA or 401(k) is not guaranteed to last throughout retirement. Social Security, on the other hand, is set up to pay you your monthly benefit for life. So the larger that benefit is, the more financial security you get.

Plus, Social Security benefits are eligible for an annual cost-of-living adjustment, or COLA, that you don't have to do anything to earn. Your IRA or 401(k) won't give you a similar boost automatically.

You could set yourself up for one with smart investments, but it's not guaranteed. The larger your monthly Social Security checks, though, the more meaningful the program's COLAs might be through the years.

For this reason, it could pay to tap your savings to cover your early retirement expenses and hold off on claiming Social Security. But you'll need to proceed with caution.

It's a matter of what your savings and circumstances look like

Tapping your savings to put off Social Security might make a lot of sense when you're sitting on a $2 million nest egg. When you only have a $400,000 IRA, the decision becomes a lot trickier.

Remember, the money in your IRA or 401(k) is supposed to remain invested during retirement so it continues to generate returns. The less money you have, the less yearly growth you can expect. So if you're not sitting on a particularly large sum of money, raiding your savings to cover a few years of retirement expenses could be risky.

You'll also need to consider the timing of your retirement relative to how the stock market is doing, assuming your nest egg is reasonably invested in stocks. If the market declines right as you retire, selling off assets to cover a few years of bills could mean locking in serious losses. In that scenario, raiding savings to delay Social Security may not be the most prudent financial move.

But under the right circumstances, it could very much pay to live off of savings for a few years for the promise of larger Social Security checks. The key is to weigh the pros and cons of each option when making your decision.

And remember, delaying Social Security doesn't have to be an all-or-nothing prospect. If you're retiring at 67 and want to wait on Social Security, but you don't want to have to cover three full years of living costs out of savings, delay your benefits until 68 or 69. That gives you a higher monthly benefit than what you'd get at 67, even if it's not the maximum benefit you can personally snag.

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