The “When Should I Claim My Benefit” Dilema
Choosing the optimal time to start receiving your Social Security benefit is an important step toward ensuring that your retirement income and savings will last throughout the rest of your life. No one wants to leave benefit dollars on the table due to a poor timing decision, not even those who have adequate savings and pensions and are not relying upon Social Security to fund their retirement. The problem folks are facing, though, is that choosing an optimal time to claim their benefit is neither simple nor straightforward.
Plan For The Long Term
- 50% of us will live longer than the “average” retiree
- Most women live longer than men
- About one out of every three 65-year-olds today will live until at least age 90
- One out of seven 65-five-year-olds will live until at least age 95
Social Security benefits last as long as you live, so that means choosing the best time to claim your benefit involves “guestimating” how long that will be. Factors such as health, family history, and even income can all be helpful predictors, but they are far from perfect. Healthy people sometimes die young, while those with poor health sometimes live beyond the most optimistic estimates.
Key Points To Remember About Claiming Your Benefit
- You can collect Social Security as early as age 62, but your benefit will be permanently reduced.
- The longer you can afford to wait to claim benefits (up to 70), the larger the monthly benefit you will be receiving.
- Doing a breakeven analysis can help you determine when you would likely come out ahead – more total dollars – by delaying your benefit. For example, if you would get $1,500 a month starting at age 62 or $2,000 a month starting at age 66, then you will have received roughly the same amount in total benefits by age 77 or so.
- Spouses can also claim benefits as early as age 62, based on their partner’s work record.
Although delaying the receipt of your Social Security benefit can boost your monthly payment, it also reduces the number of months that you will receive those payments. This leads us to consider the following questions:
- Should you start receiving smaller Social Security payments sooner, so that you get more total payments during your lifetime? or
- Should you delay taking Social Security until some future date, so the payments you’ll receive will be larger?
A Helpful Resource For You
To help bring clarity to this decision process, I encourage you to get a copy of my flowchart, “Will My Social Security Benefits Be Reduced?”. It is based on the Social Security Administration’s guide, “Retirement Benefits,” and addresses common issues including:
- How to determine Full Retirement Age (FRA)
- Effects of marriage and divorce
- Implications of collecting benefits before, at, or after FRA
- Annual limits
- Impact of continuing to work while claiming benefits
- How benefits will be taxed
The Decision For Married Couples
For married couples, the decision-making process can be even more challenging, because it’s two lives to consider, not just one. And it can often be a mistake for each spouse to base their decision on when to start receiving benefits based upon how long they think they (themselves individually) will live. Instead, they should consider the following strategy.
Who Is Likely To Die First, Second?
Instead of focusing on when their own death will occur, the spouse who will receive the larger Social Security benefit should focus on when they believe the second death (of the couple) will likely occur. By contrast, the spouse who will receive the smaller-benefit should focus on when they believe the first death will likely occur.
If the couple believes that either will live into their 80s, the larger-benefit spouse should consider delaying their benefit – possibly until age 70 – even if they don’t think that they will live much beyond that time themselves. Alternately, if the couple believes that either spouse will die within the next decade or so, the smaller-benefit spouse might want to consider claiming their own benefit sooner, even if they think that they will personally live to age 100.
Why Does This Work?
When the first spouse of a married couple dies, the smaller Social Security benefit goes away, and the larger Social Security benefit will continue with the surviving spouse. Therefore, if at least one spouse ends up living into their 80s, it makes sense for the larger-benefit spouse to delay receiving their Social Security, possibly until age 70. This decision is generally more important, since claiming “too early” will directly affect both spouses regardless of how long each lives.
Furthermore, if the smaller-benefit spouse is the survivor, and they have still not achieved Full Retirement Age (FRA), it may be advantageous for them to continue receiving their own Social Security benefit for a while. If they can wait to switch to the survivor’s benefit after they reach FRA, they will avoid reductions to their benefit.
For couples who are struggling to decide when would be the best time to claim Social Security, the default thought process should often be to have the spouse who will receive the larger benefit to delay claiming their benefit and have the smaller-benefit spouse claim theirs at a younger age.
This strategy doesn’t work for all couples. And even for couples that it will help, there will still be questions like:
- How early should the smaller-benefit spouse claim their benefit if they want to start getting something sooner in case they don’t live as long as they had expected?
- How long should the larger-benefit spouse wait to claim theirs, so they can get the protection of larger payments in case one of them lives a long time?
In the end, Social Security claiming decisions are decidedly personal and can be quite complex. Therefore, folks are encouraged to consult with their financial advisor before taking any action.
I would like to have a conversation with you about your Social Security benefit claiming strategy and how my flowchart, “Will My Social Security Benefits Be Reduced?” can help you take control of your finances.