Deciding when to take Social Security is one of the most complicated decisions to make when planning for retirement. You can claim benefits anytime from age 62 to age 70, but if you retire when you're younger than full retirement age, you'll see a reduction in benefits, whereas benefits will keep increasing until age 70 if you delay.
There are different pros and cons to claiming Social Security early, late, or on time, but experts from the Stanford Center for Longevity recently ran an assessment of a wide variety of different strategies and came up with a recommended age for claiming Social Security -- which might make your decision easier.
What's the right age to claim Social Security?
Experts at the Stanford Center for Longevity worked with the Society for Actuaries to look at 292 different strategies for generating retirement income, with the goal of finding the best plan for middle-income workers to be financially secure throughout retirement. Strategies included starting Social Security at 65 or starting at 70, along with other techniques for generating supplemental income. Considerations included:
- Levels of income and accessible wealth throughout retirement.
- Trade-offs between income vs. liquidity.
- How retirement income would keep pace with inflation.
- Potential volatility.
Based on an analysis of a wide variety of different scenarios taking all these factors into account, the experts determined that the best option for retirees is to claim Social Security benefits at age 70.
Why is 70 the right age to claim Social Security benefits?
The Stanford researchers determined that Social Security is "close to the perfect retirement income generator" because it meets important retirement planning goals including:
- minimizing taxes, since part, or all, income is tax free
- protecting against common risks including inflation, longevity, and the death of a spouse
- limiting the risk of fraud
Because Social Security meets all of the targets for an optimal source of retirement income, it's best to maximize income from Social Security benefits -- which means delaying until age 70, when your monthly benefit will be as large as possible.
If workers can delay, the vast majority of their retirement income will come from this "optimal" source. In fact, while Social Security benefits will likely represent one-half to two-thirds of total retirement income for middle-income retirees if workers start claiming benefits at 65, it will represent three-quarters to more than 85% of income if retirees delay to optimize benefits.
This study confirms past research demonstrating the advantages of delaying Social Security. While past studies have considered Social Security strategies in isolation, this study confirms delayed claiming is still the optimal approach when considering a total retirement portfolio.
However, the researchers acknowledged things become more complicated if you're married. While the spouse with the higher wages should generally wait until 70, an individual analysis of claiming options could be beneficial for married couples.
Finally, while there's a potential risk of benefits being reduced due to political change, the study addressed this and stressed the importance of assessing the likelihood Congress would actually change the rules for near-retirees or current retirees.
Options for delaying benefits
Because delaying benefits can present challenges if you retire before 70, researchers also provided suggestions for waiting to claim benefits. Options include:
- Working enough to pay for living expenses until 70. This was described as the "best" approach, although the researchers acknowledged retirees might need to reduce their living expenses for their incomes to cover costs while delaying a claim for benefits.
- Using a portion of savings to delay claiming Social Security benefits as long as possible. The disadvantage of this option is that it could adversely impact liquidity and substantially reduce savings. However, this downside must be weighed against the permanent increase in guaranteed retirement income that comes from delaying.
- Living off Social Security benefits of a lower-earning spouse. The spouse who isn't the primary wage earner may be best off claiming benefits somewhere between full retirement age and age 70. By reducing living expenses, it may be possible for a married couple to live off these benefits until the primary earner can claim the maximum benefits.
By delaying your Social Security benefits, you can maximize guaranteed lifetime income that keeps pace with inflation, has a low risk of fraud, and is at least partly tax-free.
Should you follow the experts?
Ultimately, only you can decide which retirement strategy is feasible for you. Many people claim Social Security when they're younger than 70 because they simply have no option if they have no savings and cannot find work. Others don't expect to live long and prefer not to wait to receive benefits.
The important thing is to understand how claiming at different ages could impact benefits -- the table in this article can help -- and to make a fully informed choice, with knowledge of what the experts recommend as your best option.