Waiting until after full retirement age to file for Social Security? You need a backup plan.

Maurie Backman
The Motley Fool

In the course of planning for retirement, one of the most crucial decisions you might face is when to sign up for Social Security. If you claim benefits at full retirement age (FRA), which kicks in at 66, 67, or somewhere in between, depending on your year of birth, you won't face a reduction or boost. Rather, you'll get the precise monthly benefit your earnings history renders you eligible for.

That said, you can sign up for Social Security up to five years ahead of FRA, beginning at age 62. For each month you claim benefits ahead of FRA, your benefits get reduced, but you get your money sooner.

On the flip side, for each month you delay Social Security past FRA, your benefits get a boost. In fact, you can hold off on filing all the way up to age 70 and grow your benefits simultaneously. And if you wait that long, you'll end up with a 24% to 32% boost for life, depending on your specific FRA.

Clearly, there's much to be gained financially by delaying your Social Security claim. But if that's the route you decide to take, you should also have a backup plan.

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Why claiming Social Security later on may not work out

Your work status may not impact your Social Security filing if you enter retirement with a large nest egg. But many seniors need to keep working in order to make delaying Social Security feasible.

If that's the boat you're in, you can try to hold off on filing past FRA – but you can't assume that plan will work out. That's because older employees routinely wind up having to leave the labor force earlier than planned, whether due to health issues, layoffs, or other matters outside their control. And so if you're banking on a larger Social Security benefit to fund your retirement, you may want to put a backup plan into place.

SOCIAL SECURITY:  3 steps to take before you start claiming benefits

Now that backup plan could mean working part-time in retirement if the need to do so arises. It could also mean downsizing to a smaller home or renting out a portion of a larger one you decide to hang on to.

But either way, it's important to know what steps you'll take to compensate financially if you're unable to delay your Social Security claim despite having every intention to do so. That way, you won't be left to struggle throughout retirement.

Your health should be a factor, too

While delaying Social Security could mean getting a lot more money from the program on a monthly basis, it may not necessarily result in you getting more on a lifetime basis. To achieve the latter, you'll generally need to live a longer life. And if your health isn't great going into retirement, that may not happen.

As such, before you commit to delaying Social Security, think about whether that's doable, and also whether it actually makes sense from a financial standpoint. You may decide that claiming benefits at a younger age is actually a better way to go.

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