Among the most frequently recommended strategies in retirement planning is to delay claiming Social Security benefits until the age of 70. This advice emphasizes the financial advantage that comes with postponement, since benefit amounts generally increase by about 8% annually for each year benefits are deferred beyond full retirement age, up to 70.
While the larger monthly benefits associated with waiting can be appealing, such blanket financial guidance does not necessarily fit every individual's circumstances. In fact, a significant portion of retirees, potentially even a majority, might find it advantageous to begin collecting Social Security benefits before reaching age 70.
Clarifying Social Security claim decisions for individuals
For single individuals who either were never married or have no entitlement to spousal benefits, the decision to maximize lifetime Social Security income tends to be straightforward. Provided they are in good health and likely to live at least an average lifespan, delaying benefits as long as possible up to age 70 is typically the optimal choice.
Complexities involved when spouses are part of the equation
The decision-making process becomes more complicated when marriage or partnerships introduce spousal and survivor benefits into the analysis. Determining how to maximize lifetime Social Security income for couples involves additional layers of consideration beyond individual benefit maximization.
Generally, for many couples, the widely advised strategy is for the higher-earning spouse to defer claiming benefits until age 70 to secure the maximum monthly amount. Meanwhile, the lower-earning spouse is often advised to claim benefits at the earliest eligibility age, usually 62. Though variations exist depending on factors such as age differences and income disparities, this pattern is commonly effective in enhancing total lifetime Social Security income for the pair.
Often, the closer a couple is in both age and earnings, the greater the likelihood that one partner will start claims at 62 and the other at 70 to optimize combined lifetime benefits.
One pivotal component of this strategy's success rests on Social Security's survivor benefits, which can provide a surviving spouse with an amount equivalent to what the deceased spouse was receiving prior to passing. Consequently, the couple’s aggregate benefits over their joint lifetimes tend to increase. The earlier claiming spouse gains a head start despite the reduction for early filing, while surviving benefits can potentially rise to higher levels following one spouse’s death, particularly benefiting the earlier claimant.
Since only about 5% of individuals reaching retirement age have never been married, this implies that nearly half of the retiree population might be better served by filing for Social Security prior to age 70.
Additional reasons why early claiming may be sensible
Beyond strictly maximizing Social Security payments, life circumstances often influence when benefits should be claimed.
For many, retiring comfortably without fears about depleting investment portfolios later in life may make early claiming more appealing. Initiating Social Security benefits sooner can provide the financial foundation needed to leave the workforce earlier, enabling enjoyment of those years outside of employment.
Health considerations also play a significant role. Individuals facing medical issues or declining health may find it logical to claim benefits significantly before age 70. Given a lower life expectancy, claiming earlier aligns mathematically with expected benefit optimization.
Furthermore, if retirees recognize that their quality of life may be better in their 60s compared to their 70s, beginning Social Security sooner to fund that period of enjoyment can be an astute personal finance decision.
These choices warrant careful deliberation and should not simply be justified after the fact. Consulting a qualified, fee-only financial advisor is strongly recommended to assess individual situations and determine the most suitable Social Security claiming strategy.