When Should You Claim Social Security Benefits?

This Big Decision Requires Planning, Thought And Attention

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It’s arguably one of the most important retirement-planning choices you’ll ever make: Deciding when you’ll start taking Social Security benefits.

But despite the crucial a role that Social Security plays in creating a retirement income plan that will sustain you throughout retirement, few people give as much thought to this decision they should. Indeed, even though recent figures from the Society of Actuaries show that life spans are increasing, 62, the earliest age at which one can generally file for benefits, remains the most popular age for claiming Social Security.

Of course, if you’ve been forced to retire and don’t have sufficient savings to sustain you in retirement, you may have no choice but to start collecting Social Security payments as soon as you can. But if you do have some maneuvering room, claiming later rather than earlier is often the smarter choice.

One reason is that delaying, even just a few years, can get you a significantly higher Social Security check, which can dramatically increase the amount of benefits you’ll collect over your lifetime. For example, each year you postpone taking benefits between the age of 62 and 70, your payment rises roughly 7% to 8% a year. (There’s no advantage to delaying later than age 70.) If you also work during the years you put off claiming benefits, your eventual payment go up even more. The Social Security Administration looks at your entire work history when calculating benefits. So a few additional years of work could boost your payment by even more than increase you’ll get simply by delaying.

Married couples can increase the amount they’ll likely collect over their lives even more than singles can by coordinating when they take benefits to maximize their potential joint payout. Let’s say, for example, a 61-year-old man who earns $100,000 a year and his 58-year-old wife who makes $60,000 annually each start taking their Social Security benefit at age 62.

Based on estimates from Financial Engines' Social Security calculator, this couple would collect a projected $1.1 million in lifetime benefits.

But by better timing when—and what type of benefit—they collect, this couple can do a lot better. For example, if the wife takes her own benefit at 63, her husband files a “restricted application” for spousal benefits based on his wife’s work record once he reaches his full retirement age of 66 and the husband then switches to his own work benefit at 70, their projected lifetime benefit would rise to roughly $1.4 million. That’s an increase of some 40%, or an extra $300,000 in projected lifetime benefits just by delaying a bit and better coordinating how they claim.

I know that many people think they may do better claiming Social Security early and investing the benefits—or taking the payments so they can withdraw less from retirement savings, which amounts to the same thing. But that’s a risky strategy, and one that can backfire, especially if your investments earn subpar returns or you (or your spouse) end up living to life expectancy or beyond. Besides, it’s more prudent to look at Social Security as an insurance program of sorts designed to help you maintain a decent living standard even if you live to an advanced age rather than a way to try to game the financial markets for extra income.

(That said, you may still want to take your Social Security payments into account when deciding how to divvy up your retirement portfolio between stocks and bonds.)

Given that so much money is at stake—not to mention your retirement security—I recommend that you rev up a good Social Security calculator before you file for benefits. You might also want to check out some of the Social Security resources listed in RealDealRetirement.com’s Retirement Toolbox, as they can give you more specifics about how the Social Security program works.

If you’re not comfortable assessing your Social Security options on your own, you may want to try one of the services that, for a fee, will crunch the numbers for you—or talk to a financial adviser who knows the ins and outs of the system

But unless you really have no other choice, don’t automatically start taking benefits as early as possible just because you can.

Disclosure:  This information is provided to you as a resource for informational purposes only.  It is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors.  Past performance is not indicative of future results.  Investing involves risk including the possible loss of principal.  This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax or investment advisor before making any investment/tax/estate/financial planning considerations or decisions.