With Social Security, This Matters More Than Anything Else

Don't waste your time trying to decide when to claim without taking this into account.

Dan Caplinger
Dan Caplinger
Feb 17, 2019 at 8:04AM
Investment Planning

There's a huge controversy surrounding when the best time to claim Social Security benefits is. Some believe that you should get moving as soon as possible, claiming benefits at your first opportunity when you turn 62. Others point to the ability to get larger monthly payments if you're willing to wait, with big boosts from waiting until full retirement age and even bigger increases if you can delay until you reach age 70.

Analyzing your best potential option can take a lot of work. If you want to come up with the most complete answer, you'll need to look at factors like whether you're still working or have retired, how much you've earned over the course of your career, what financial resources you have other than Social Security, and what your current health situation says about the chances of your living longer or shorter than your calculated life expectancy.

However, when it comes to claiming Social Security, there's really just one thing that matters more than anything else: whether you have other family members who'll be relying on your work history to claim benefits of their own. If the answer is yes, then the odds go up that the right strategy will be to wait rather than claiming early.

Three Social Security cards with a brass key on top.

Image source: Getty Images.

When you can keep things simple

The beauty of Social Security is that the program was set up to try to make it relatively unimportant exactly when you claim your benefits. When you look at the ways in which the Social Security Administration adjusts monthly benefits depending on when you claim, you can see that it takes actuarial projections into account. The general idea is that if you claim early, you'll get more payments, but they'll be smaller than if you waited. If you live to your life expectancy, then everything should even out. Live longer, and you'd be smarter to wait, but if you don't make it that long, you would've been better off claiming early. So once you've made a decision about your own likelihood of outliving your expected lifespan, you're essentially done.

The same is true even in many family situations. For instance, if you're married and both you and your spouse work, then both of you will have a work history on which to claim Social Security benefits. Unless the difference between your two salaries is extremely large, each of you will be better off claiming your own retirement benefit rather than seeking to claim a spousal benefit based on the other spouse's work history.

The complexity of Social Security family benefits

By contrast, there are still some families in which only one spouse works throughout their entire marriage. For these families, the claiming decision gets more complicated, because there are several ways in which the two spouses have to coordinate in order to get the best overall result:

  • Nonworking spouses aren't allowed to claim spousal benefits until the working spouse claims retirement benefits. That tends to favor having the working spouse claim earlier so that the spousal benefits can get started -- although the monthly amount for earlier-claimed spousal benefits is also subject to reduction.
  • If the working spouse passes away before the nonworking spouse, then the survivor benefits paid to the nonworking spouse are based on the amount that the working spouse received -- including adjustments for claiming either early or late. In other words, with survivor benefits, the surviving spouse is essentially stuck with the decision that the working spouse made -- regardless of whether that would've been the best decision for the surviving spouse.

To see how this works, take an example that happens all too often. Say you have a working spouse in poor health and a nonworking spouse in excellent health. If the working spouse doesn't take the impact of survivor benefits into account, then the smartest choice will generally be to claim early to maximize payments with the expectation that the working spouse won't live to full life expectancy.

However, if the working spouse claims early, the nonworking spouse will receive a smaller survivor benefit amount. By contrast, waiting might have resulted in the working spouse getting less in benefits, but the increase in what the nonworking spouse would get in survivor benefits would more than make up for the initial shortfall.

Make the right Social Security decision

The key here is that when you can afford to be selfish with your Social Security decision, making a smart choice is relatively easy. But when you have to take other people into account, things get a lot more complicated. In many cases, what seems like the best answer for you might be the worst possible answer for your loved ones -- and that's why making an effort to get the whole story can pay off.