Before you file for your Social Security retirement benefits, take into consideration a few factors. While you can start receiving Social Security checks at age 62, you may be able to get more money out of the government program by delaying to as late as 70 years old.
Here are three big factors to consider when deciding when to claim Social Security benefits.
1. Your health
Social Security will increase your monthly benefit every year you delay collecting, but then you'll receive benefits for one fewer year. The delayed retirement credits are made in such a way that you'll end up collecting roughly the same total amount if you live the average life expectancy.
If, however, you have reason to believe you'll pass away sooner than the average age, that would weigh heavily in favor of claiming early. On the other hand, if you have no reason to believe you'll die relatively early, it can often work to your advantage to delay as long as you can. Delaying Social Security is like buying insurance against living longer than expected.
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2. Your spouse
Spouses have the option of claiming their own benefit or up to half of their partner's benefit. Importantly, the spouse can only claim their partner's benefit if their partner has already filed for themself. Additionally, spousal benefits don't accrue delayed retirement credits beyond full retirement age.
If you earned significantly less than your spouse over your working career, there's limited value in delaying your claim beyond your full retirement age. Even if your spouse is younger and you won't be able to claim your spousal benefit until they file, you won't be collecting your own Social Security benefit for long enough to benefit from delaying. Thus, all other things being equal, claiming at full retirement age is often best.
If your spouse is older than you, it could make sense to claim even earlier, and start collecting diminished spousal benefits. If your spouse passes away before you, you can switch to a survivors benefit, which gives you up 100% of your spouse's benefit at full retirement age.
If your spouse earned significantly less than you and will benefit from spousal benefits, the timing of your claim impacts when they can claim. Often, delaying the higher earner's Social Security benefits makes the most sense. But if the difference your spouse will collect in benefits is significant enough, you may want to start collecting your benefits earlier so they can switch. This would certainly be the case where your spouse didn't work long enough to become eligible for Social Security and is fully relying on spousal benefits.
Couples need to plan their Social Security strategies together, taking into account their ages and health.
3. Other assets
If you hold a lot of assets across various accounts, you may benefit from delaying Social Security. Not only will you earn delayed retirement credits, you'll have a few years without any earned income to do some positioning to minimize your taxes. Your mid- to late-60s can be an opportune time to perform a Roth conversion or take some capital gains in your brokerage account.
On the other hand, if you're depending on Social Security to provide for a big chunk of your living expenses, you might not need to do much tax planning. You may benefit by taking your Social Security earlier to ensure you don't draw down your other assets entirely.
That said, investors delaying Social Security shouldn't be afraid of a slightly higher withdrawal rate from their portfolio earlier in retirement. The burden on the portfolio will decline once you start collecting Social Security checks every month.
If you take into account the expected value of your Social Security benefits in your portfolio, adjusting for your own life expectancy, as well as your spouse's claiming strategy, you should be able to come up with a great approach for when to file for benefits.
