Social Security is often the largest source of income in retirement, so maximizing benefits can dramatically improve living standards in later life. For that reason, starting Social Security at the right time is of monumental importance, as the claiming age has a material impact on benefit payments.
While eligibility for Social Security begins at age 62, workers aren't entitled to their full benefit, or primary insurance amount (PIA), until full retirement age (FRA). Workers who claim Social Security before FRA will get a smaller benefit for life, meaning their PIA will be permanently reduced by a predetermined percentage. Similarly, workers who delay Social Security beyond FRA will get a bigger benefit for life, though there is no advantage to claiming later than age 70.
For married couples, the math becomes more complicated because claiming decisions also impacts spousal benefits. Specifically, a spouse can collect benefits on the work record of their retired partner instead of their own, provided their partner has started taking Social Security. In that scenario, the spousal benefit will equal half of the retired partner's PIA if they claim at FRA, but the payout will be reduced for spouses who claim earlier.
Here's the question: What's the best age for couples to claim Social Security?
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Most workers should delay Social Security until age 70
The National Bureau of Economic Research (NBER) recently published a study examining the extent to which Americans shortchange themselves by collecting Social Security too early. The authors used a model that accounted for lifespan uncertainty and taxes, while considering how claiming age would impact multiple types of Social Security benefits, including retirement benefits, spousal benefits, and survivors benefits.
Here are the results: Among workers aged 45 to 62, more than 90% should delay retirement benefits until age 70, yet current behavior suggests only 6% will wait that long.
Broken down differently, the average head of household would optimize Social Security by claiming at age 69.9, and the average spouse would optimize Social Security by claiming at age 68.7.
Collectively, those optimization paths would increase lifetime discretionary spending (LDS) by $182,370 for the median household, meaning half would see an even bigger bump in spending power. Indeed, LDS would increase by more than $289,893 for one-quarter of households, and more than $410,261 for one-tenth of households, according to the NBER study.
There are two important caveats: First, individuals with no work history should never claim spousal benefits later than FRA. Unlike retired-worker benefits, spousal benefits do not accumulate delayed retirement credits, so the payout doesn't increase if the recipient delays benefits beyond FRA.
Second, half of the households in the aforementioned age group will see a temporary reduction in spending power if they pursue the optimization strategy discussed above, simply because they would forgo income in the near term in exchange for bigger benefits in the future. That trade-off may be unappealing or financially infeasible for some married couples.
Focus on maximizing the higher-earning spouse's Social Security benefit
While most workers would do well to claim retirement benefits at age 70, retired couples that are either unable or unwilling to reduce spending between retirement and the onset of Social Security should consider a different strategy, especially in situations where one spouse makes a lot more money.
The lower-earning spouse (i.e., the spouse with the smaller PIA) could claim benefits on their own work record at age 62, thus providing an income stream to offset cash-flow concerns. Meanwhile, the higher-earning spouse (i.e., the spouse with the larger PIA) could delay benefits until age 70, thus maximizing their payout. Once the higher-earning spouse claims retirement benefits, the lower-earning spouse could collect spousal benefits if that payout was larger than their own retirement benefit.
It makes sense to prioritize maximizing the higher-earning spouse's benefit for two reasons. First, doing so produces a greater increase in spending power, compared to maximizing the lower-earning spouse's benefit. Second, it also creates a larger survivors benefit for the lower-earning spouse should their higher-earning partner pass away first.
Social Security optimization tools can guide the decision-making process
Unfortunately, there's no one-size-fits-all answer regarding the best age for couples to claim Social Security, and statistical probabilities only mean so much to the individual. Readers looking for more personalized guidance should consider an optimization tool like Open Social Security.
The Open Social Security platform seeks to identify the best claiming age based on individual circumstances. It estimates and compares the probability-weighted payout at every possible claiming age between 62 and 70 while considering how retirement benefits, spousal benefits, and survivors benefits would be impacted.
The calculator then selects the strategy that would theoretically maximize lifetime spending power. The computation is based on average life expectancy, but alternative mortality data can be incorporated, such as life expectancies for people in better-than-average health or who use tobacco.
