Deciding When To Take Social Security

As you approach retirement age, you may wonder when you should elect to receive Social Security. How much you receive is based both on your lifetime earnings and when you start receiving payments.

If you wait to take Social Security until you reach full retirement age, which is defined by the federal government, you’ll receive 100% of your calculated amount. If you claim earlier, you’ll get a lesser payment. And if you wait past full retirement, the benefit will be bumped up. Claiming benefits at 70 years old results in a payment of perhaps 77% more than what you’d get at age 62. Would you rather take less for longer or more for shorter?

It is not surprising that most people say that maximizing retirement income is important to them. Yet in 2022, less than 10% of folks who started retirement benefits were at least 70 years old. Why do so many people elect for a smaller payout each month? Often, there are health, family or financial considerations, especially because the break-even point matters only if you live long enough to reach it.

Among the reasons for claiming benefits early:

• Being in poor health: Social Security can help offset high medical outlays.
• Being single: You don’t worry about the impact of an early claim on a surviving spouse.
• Working at a physically taxing job: If you retire early, Social Security provides a small income.

Similarly, there are good reasons to wait until later:

• Being in good health and/or having a family history of longevity.
• Taking distributions from your 401(k) or individual retirement account first.
• Having good savings that you can live on in your first years of retirement.
• Staying employed.

It is important to note that if you continue working and earn over a certain amount, claiming Social Security early may lead to your benefits being reduced. However, this earnings test does not apply once you reach full retirement age. At that point, you will be able to claim full benefits no matter how much you are still earning.

Considerations for married individuals

If you’re married, choosing when to claim Social Security may be influenced by your spouse’s work history and potential Social Security benefits. Some of the possible considerations include the following:

• If your spouse’s retirement benefit is lower than yours, they may be eligible to receive a spousal benefit based on your earnings record. This spousal benefit typically amounts to between one-third and one-half of your benefit but only becomes available once you claim Social Security. If that is true, you may be able to maximize household benefits by delaying your claim to Social Security until age 70, while your spouse, the lower earner, claims their own benefit earlier. When you eventually file, your spouse switches to the spousal benefit, which may be higher than their individual benefit.
• If your spouse does not qualify for Social Security retirement benefits based on their own earnings record, it may be a good idea for you to elect Social Security early. Even though you will receive a lower benefit, your spouse can nonetheless elect spousal benefits, which leads to two income sources from your earnings.
• When one spouse dies, the other becomes eligible to receive the deceased’s entire Social Security payment if it exceeds their own. How much the surviving spouse receives is affected by whether the deceased spouse elected Social Security early or late. In other words, claiming later increases the benefit in your lifetime and provides your spouse with a larger payment and greater financial security after you have died. If you earned significantly more than your spouse, wait as long as possible to create the highest survivor benefit.

It’s possible to see estimated benefits at different ages by using the Social Security Administration calculator. You will have to create an account with the SSA, but this account will be necessary once you elect benefits. It is also wise to consult a financial adviser about your options.