How much money do you need to retire on? The three-legged stool of pension, personal savings and social security is a bit more wobbly these days. So one of the most significant financial decisions facing you as retirement age nears becomes ‘when should you claim your Social Security retirement benefits?'
If you can hold out an extra year or two, the increased monthly benefit may be worth it. On the other hand, you may need money now more than you can tolerate a promise of future dollars.
Some Americans claim their Social Security benefits at age 62, the earliest possible age to do so, despite a lower payout.
Many others wait until they reach their “Full Retirement Age” (FRA), established by the Social Security Administration as the age when full benefits are paid. For Americans born in 1960 or later, age 67 is the magic number to receive FRA benefits.
Some even delay longer, potentially to age 70 or beyond, to receive an even greater monthly benefit.
Delaying past your FRA adds 0.67% per month, or 8% per year, to your benefit relative to what it would have been at FRA, according to the Social Security Administration.
The critical thing to understand is that by design, your lifetime benefit, on average, will be the same no matter what age you claim your benefits. Claiming earlier reduces your monthly benefit, but you get more payments. Whereas delaying your start increases your monthly benefits, you get those for fewer months.
Hence, when you should take your benefits depends on how your personal situation compares to the average person’s.
Main Factors To Consider
Many factors might impact your optimal strategy for timing when to begin receiving your Social Security benefits. Chief among them is your expected life span.
“If you’re healthy and have longevity in your family, you might live past the Social Security Administration’s life expectancy tables,” says Kevin Lao, CFP, Founder and Director of Financial Strategies, Imagine Financial Security, LLC. “But if you are not healthy and don’t have longevity in the family, you might consider claiming as early as possible.”
Another important factor to consider is your desire to continue working in your 60s.
“If you claim benefits before your Full Retirement Age, you’re limited in how much earned income you can have before your benefit is reduced,” says Yvonne Marsh, CFP, CPA, and Principal at Marsh Wealth Management. “In 2023, that limit is $21,240. Your benefit is reduced by $1 for every $2 over that limit you earn, so the amount of your benefit check gets smaller in a hurry if you’re still working.”
Income Level and Spouse
Learning how to align your benefits is crucial for married couples, and each situation is different.
“Some couples want to solely work on how to maximize their total lifetime benefit, while others want more money upfront in the early stages of retirement while they’re young and able to travel,” explains Nick Covyeau, CFP, Owner and Financial Planner at Swell Financial. That’s why working with a financial planner is so critical in determining what is best for the both of you.”
Additional considerations facing married couples are the implications upon the death of a spouse.
“At the first spouse’s passing, the surviving spouse gets to keep the greater of the two benefit checks,” said Marsh. “By allowing at least one of the spouse’s benefits to grow as large as possible, it provides a larger survivor’s benefit.”
This can be critically important for the surviving spouse as the household feels the combined effect of the loss of one less Social Security check and higher tax rates as the surviving spouse shifts from Married Filing Joint brackets into Single tax brackets, Marsh said.
Hire a Professional
Experts suggest seeking professional advice from a financial planner rather than relying on government services staff to steer you through.
“Don’t expect the Social Security Office to help you optimize your filing strategy,” said Emily C. Rassam, CFP, NSSA, and Senior Planner at Archer Investment Management. “SSA employees can only tell you the rules and facts, they cannot help you strategize.”
Once you’ve gathered your benefit options, including any applicable spousal or survivor benefit options, Rassam suggests visiting a financial planner who has completed the National Social Security Advisor (NSSA) coursework or Retirement Income Certified Professional (RICP) coursework. Both take a deeper dive into the filing strategies.
Two other factors have a massive impact – education and income. The more highly educated you are, generally the higher your income and the longer your life expectancy. That longer life expectancy adds weight to the benefit of delaying Social Security benefits.
In 2012, the NY Times reported on research that found expectancy for white women without a high school diploma was 73.5 years compared with 83.9 years for white women with a college degree or more. For white men, it was 67.5 years for those without a diploma compared with 80.4 for those with a college degree or better.
While it isn’t clear what portion of those 10 or 13 additional years of life expectancy, for women and men, respectively, are due to reduced mortality before retirement, it’s very likely that at least some of those extra years extend the length of retirement.
Also, according to data published by the Congressional Research Service in 2021, life expectancy at age 50 increases for those in the top income quintile relative to both the lowest 20 percent of income earners and the middle 20 percent to the upper 40 percent.
It’s unclear to what extent this overlaps the benefit of increased education. Still, it pushes in the same direction – if you’re in the upper 40 percent of income, and even more so if you’re in the upper 20 percent, delaying Social Security benefits makes more sense for you.
There are many factors to consider in optimizing Social Security payouts. Considering these factors, you can better chart your personal course for a financially secure retirement. And making the optimal decision on when to claim Social Security retirement benefits can make a huge financial difference.