Most Americans start drawing Social Security as soon as they’re eligible, not knowing that waiting could pay off for them and their spouse.
You can start receiving Social Security benefits at age 62, but waiting until age 70 will boost your benefits by as much as 8 percent a year. “Some people didn’t realize and didn’t know they could delay,” says Colleen Jaconetti, senior investment strategist at mutual fund giant Vanguard Group. “I don’t think it’s been well publicized.”
If you’re helping a senior claim Social Security benefits or trying to devise your own plan, consider the decision carefully and weigh the options. It can be difficult to get a do-over if you make a mistake.
Jaconetti illustrates the significance of the decision with the example of someone born in 1960 who will reach Social Security’s full-benefit retirement age when they turn 67. If his benefit at 67 is $1,500 a month, then his monthly checks will grow to $1,860 per month if he waits to claim benefits until he turns 70. By contrast, if he claims benefits early at age 62, his initial monthly check will only be $1,050.
There is a break-even point when taking benefits at age 70 will outpace the amount taken early, but there is more to waiting than just gambling that you’ll live a long life. Waiting to collect Social Security also means higher benefits for a surviving spouse—a critical issue, especially if that spouse has earned less over their lifetime.
Get Help From a Professional
In 2015, the government eliminated some Social Security planning strategies and loopholes that maximized benefits, but it’s still a good idea to ask a financial planner to help devise a plan that fits your unique situation. “Social Security is very technical in the way they explain things,” says Dan Mathews, a certified financial planner with Creative Planning in Leawood, Kansas. “You need a decoder ring to figure things out.”
To find a certified financial planner, visit www.letsmakeaplan.org. The website is maintained by the Certified Financial Planner Board of Standards (CFP), which maintains rigorous ethical and professional requirements for financial-planner certification.
Figure Your Full-Retirement Age
Depending on your area of work, your employer’s retirement age and the Social Security Administration’s (SSA) full-retirement age are likely two different things. This milestone used to be 65, but the government increased that it beginning with people born in 1938 or later. The age gradually increases until it reaches 67 for individuals born after 1959.
For example, if you were born in 1955, the SSA says your full-retirement age is 66 and two months. You might retire from work and claim your benefits now at age 62, but you won’t receive full benefits until you reach their specified retirement age.
This is important because someone born in 1955 who is eligible to receive $1,000 a month at full-retirement age will only get $741 a month if they claim those benefits now. That’s a 26 percent reduction just for claiming them early.
Of course, some people just can’t wait. Perhaps they’re in very poor health and unlikely to live long in retirement or they must collect these payments to survive and make ends meet.
If you’re not sure what your full retirement age is, you can use this SSA calculator to help you figure it out.
Wait, There’s More!
The SSA makes it worth your while to wait. For example, if you were born in 1960 or later, you would only receive 70% of your Social Security retirement benefits at age 62. If your benefit is $1,000 at full-retirement age (67), you would only receive $700 if you start taking benefits at age 62.
But if you wait, Social Security will increase your benefits by eight percent a year from your full-retirement age until 70. If your monthly benefit is $1,000 at full-retirement age (67) and you delay payments until age 70, you’ll receive $1,240 each month. (You should take benefits at age 70 because they won’t increase after that.)
You can view a table of the calculations of the impact of claiming early or late retirement benefits here: https://www.ssa.gov/OACT/ProgData/ar_drc.html.
Depending on your age and when you start taking Social Security benefits, the break-even point when delaying payments exceeds taking them early occurs after about 10 years. That may seem like a long time, but Americans are living longer thanks to healthier lifestyles and advances in medical care.
“If you think you need it at 62, you need to put it off because you’ll really need it at 82,” says Charles Sachs, a certified financial planner in Miami. “What I’m concerned about is that you’ll live way beyond your life expectancy.”
According to data compiled by the SSA, a man reaching age 65 today can expect to live on average until age 84.3. A woman turning age 65 today can expect to live on average until age 86.6.
To get a sense of how long you might live, the SSA offers a longevity calculator on their website that uses your gender and current age. If you’re in good health, you could live even longer than this estimated life expectancy.
Remember Your Spouse
It’s important to know that the decision to claim Social Security benefits has implications for your spouse too. “Many people make these decisions in isolation,” says Rita Cheng, CEO of Blue Ocean Global Wealth in Rockville, Maryland. “They don’t think of income streams together.”
For starters, widows and surviving divorced spouses whose marriages lasted 10 years or more are eligible for survivor benefits. So, waiting to claim Social Security benefits to age 70 also increases your spouse’s survivor benefits. “Most spouses don’t even realize they get a survivor’s benefit,” says Mathews. You can find more about how survivor’s benefits are calculated by using the SSA’s Survivors Planner.
In addition, spouses who never worked or have low earnings can get up to half of a retired worker’s full benefit. If you’re eligible for both your own retirement benefits and spousal benefits, the SSA always pays your own benefits first. If your benefits as a spouse are higher than your personal retirement benefit, you’ll get a combination of benefits that equals the higher spousal amount, the Social Security Administration says.
Consider the example below, courtesy of the SSA:
Mary Ann qualifies for a retirement benefit of $250 and a spouse’s benefit of $400. At her full retirement age, she will get her own $250 retirement benefit and Social Security also will add $150 from her spouse’s benefit, for a total of $400. (Note that under a law passed in 2015, people born on or after Jan. 2, 1954, can no longer use a popular tactic that allowed a spouse to apply for one of the benefits and delay applying for the other until a later date.)
Determining when each spouse should claim Social Security can get tricky. “The answer to the question is not as easy as you might expect, particularly with married couples,” says Marty Reid, a certified financial planner with Reid Financial Consulting in Lincolnton, North Carolina. “You should explore all of the options with your financial planner in the overall context of your planning.”
For example, Reid has access to a sophisticated planning tool from BlackRock, an investment-management firm that helps him evaluate different Social Security scenarios. In one recent counterintuitive case for a healthy couple where the husband was a high earner, Reid determined that it was more advantageous for the significantly lower-earning spouse to take benefits at her full retirement than wait until she turned 70. “That would be hard to determine without a calculation of this sort,” Reid says. “You really have to factor in the spousal and survivor benefit.”
If you and your spouse are trying to figure out the best benefits strategy or you are helping an aging family member manage their finances, consider hiring a financial planner—particularly one who can accompany you to the Social Security office. “There are a lot of little technicalities that can occur,” says Julie Hall, director of financial planning for Planning Alternatives in Bloomfield Hills, Michigan. “We’ve gone with clients to the Social Security Administration to make sure they’re speaking to someone knowledgeable. You want to make sure it gets done right.”