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This Social Security Mistake Costs Some Married Couples More Than $500,000

By Christy Bieber - Jan 17, 2020 at 8:07AM

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Could it cost you a fortune?

Last year, Social Security paid more than $1 trillion to 64 million Americans. Social Security benefits are a vital source of funds for seniors, accounting for about half of all income for 50% of married couples and 70% of singles. 

Unfortunately, many retirees are getting far less money from Social Security than they could be. That's because 62 is the most popular age to start benefits -- but claiming this early comes at a cost. 

Older couple looking at financial paperwork and using a calculator.

Image source: Getty Images.

The price of claiming Social Security early

When you claim your benefits prior to full retirement age, you'll incur an early filing penalty -- meaning you'll get smaller monthly checks. Just how big the reduction is depends how early you start, but it could be as much as 30%.

You'll also miss out on the chance to increase your monthly checks using delayed retirement credits. These can raise benefits by around 8% annually if you wait after full retirement age to start your benefits, although you can only earn them until age 70. 

When you reduce your benefits by claiming early and by forgoing delayed retirement credits, the cut is permanent. All future Social Security increases are based off your smaller starting amount.

And if you live a long time, you'll be leaving a fortune on the table. In fact, according to research from Massachusetts Mutual Life Insurance, a married couple with both spouses who claim at 62 instead of 70 would lose out on more than $500,000 in lifetime benefits. 

Why is this number so high? Because not only do both spouses get smaller checks during their lifetimes, but the survivor's benefits are also reduced for whichever spouse lives longer. 

Does that mean you should always wait to claim your Social Security benefits?

No one wants to lose half a million dollars, so there's a strong argument to be made for waiting to claim Social Security. In fact, almost four in 10 people who started their benefits early ended up regretting it, according to the same research. 

But not every married couple will live into their 90s or even into their 80s. And when you wait to claim, you need to live quite a while to break even from years of benefits you didn't receive. 

The Social Security benefits system is actually designed so you shouldn't get larger lifetime benefits by waiting. If you claim early, you get your smaller checks for a longer time; if you delay, you get larger checks for fewer years. 

If you wait to start getting your checks, you're betting on outliving your life expectancy. If you and your spouse both wait and both outlive projections, your gamble will pay off. But if you pass away early, you will have gotten less than you would've had you claimed benefits at 62.

You can't predict how long you'll live, but your personal and family health history can serve as a guide as you decide the right time to start getting Social Security. 

Don't leave $500,000 on the table without careful consideration

When you decide when your benefits should start, the important thing is that you understand how your age when you file affects the amount you receive. 

You don't want to be surprised by a smaller check than you expected, so always research your options to choose the Social Security filing strategy that's right for you.

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