Deciding when to claim Social Security is one of the biggest choices you'll make as a retiree. Your decisions around Social Security can have wide-ranging impacts, so it's crucial to understand how claiming benefits sooner can potentially help your entire financial plan.
Also remember that retirement comprises many factors, both financial and non-financial, so be sure to look at your circumstances in their totality (more on that below).
Here, we'll review four scenarios in which taking Social Security sooner rather than later might be the smart choice.
1. You're in poor health
Waiting to claim Social Security at age 70 usually makes sense for people who believe they have a life expectancy that extends at least into their late 70s, which is about the break-even point for delaying benefits versus claiming them as early as possible. If you don't expect to live until about 80, claiming benefits sooner will be the superior choice to maximize your lifetime earnings.
There is one exception, though. If your spouse expects to live on your monthly check via survivors benefits after you pass away, claiming your benefits too early could be costly in the long run. This is situation-specific scenario best discussed with a qualified financial planner or Social Security expert.
2. You are psychologically done with work
Some people reach a point in life where the benefits of going to work just don't outweigh the costs, and this can be particularly true of those approaching retirement age. Even if it would be financially optimal to keep waiting to claim benefits in the hope of locking in a higher monthly check, the emotional and psychological elements of the equation sometimes just don't add up.
This is not to say you should be impulsive around taking Social Security, but if you've decided that enough is enough (and for many, it is), you do have the option file your claim early and start enjoying your retirement. Of course, such a decision should include an evaluation of your finances too, including a tally of your savings, retirement accounts, and other income sources after you leave the workforce.
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3. You have no other annuitized assets
One of the major benefits of Social Security is that it acts as a guaranteed minimum spending floor for people in retirement. In other words, you can normally count on Social Security to cover at least some of your fixed monthly expenses.
If you have no other annuitized assets -- assets that produce reliable income every month -- you might be relying on a fluctuating stock market for your ability to pay your bills. And if the last year has taught us anything, it's that you can't fully rely on the stock market to cover predictable expenses in the short run.
Locking in a steady income stream with Social Security is one way to solve the problem. You'll also receive annual COLAs, or cost-of-living-adjustments, when you start receiving benefits. But this strategy shouldn't be your first choice for a regular income stream as tweaking your asset allocation over time gives you more options to cover your expenses in retirement.
4. You're uncertain about the future of Social Security
The Social Security Trust Funds are projected to run dry in the early to mid 2030s. If that happens, retirees would still receive benefits, albeit at about three-quarters of their original benefit amount. While there's some optimism that Congress won't allow this to happen, it would be careless to believe this is an impossible outcome.
If you've been working for over 30 years (and in some cases 40), it's understandable that you would want to take your checks now and never look back -- even if you receive a lesser amount.
Waiting isn't always optimal
Those are some of the most common scenarios in which waiting to take Social Security isn't the optimal choice. If you find yourself in poor health in your early 60s, claiming benefits sooner might be a no-brainer. If your spouse is expecting to live on your benefit checks, the decision might be a little more complicated.
Before claiming Social Security, carefully consider both the financial and non-financial factors driving your decision, and consult with a qualified advisor if you're unsure of your next step.
