May 17, 2021

For the average American household Social Security is their biggest retirement asset. Yet many people fumble the kickoff to their retirement years. They just guess when it comes to the question of when to start taking their Social Security payments. Figuring out when to claim benefits can be very complex. Please see your own advisor, everyone’s situation is different and this column is much too short to do anything but scratch the surface of Social Security claiming strategies.

You are eligible to claim Social Security at age 62 and too many people claim as soon as possible. If you absolutely need the money because you are unemployed, have health problems, or are the lower earning spouse it may make sense to take Social Security as soon as possible. But many early claimers are still working and really don’t need the money. If you take Social Security at age 62, you will get 70% of the money you would get by waiting until your full retirement age.

Many people file at age 62 because they are afraid they will not live very long. This is really not the way to look at Social Security. People do an analysis in their head and try to figure out at what age they get the largest payout. This gives people an excuse to claim Social Security as soon as possible because they think the longer you get monthly payments the more money you will get. The total benefits paid tends to be about the same for all claiming ages when you reach about 79 years old.   

What you really want to do is focus on the worst case, that you or your spouse will live a long and healthy life. Is that really the worst case? It is from the standpoint of finances, because if you claim early you are going to receive 30% less than if you waited until your full retirement age. And if you wait until age 70 to claim instead of claiming at full retirement age you get an additional 8% per year. The difference between claiming at age 62 and claiming at age 70 could be from 50% to 76% more per month.

Only about 6% of people wait until age 70 to claim Social Security yet if you go by the numbers many should wait that long. But most don’t for a variety of reasons including that once you get older your earning capacity and your employability may decrease sharply. Many of the people who claim early have very little saved for retirement and the last thing they should be doing is permanently reducing their monthly check from Social Security if they can still work.

Couples have a more complicated problem and claiming Social Security will take more planning. Since many couples rely on Social Security you have get this right. Yet, people don’t take the long-term view and consider that once one person dies the surviving spouse’s income from Social Security will drop. For instance, if the higher earning spouse claims at age 62 they are permanently reducing the amount the surviving spouse receives if the high earner dies first.

The strategy you use will depend on your own situation but here is an example of a common way a married couple could maximize Social Security if one spouse earned significantly less than the other. The lower earning spouse claims at age 62 and the higher earning spouse waits as long as they can to claim. Sounds simple but the lower earning spouse gains nothing by waiting to claim on their own record and once the higher earning spouse claims Social Security the lower earning spouse’s monthly amount will adjust up.