One of the most common pieces of retirement planning advice is to wait until 70 to claim Social Security benefits if you can. It's true that waiting until 70 to start Social Security comes with a few valuable advantages, one of which is that it usually results in a larger monthly payment. Individuals can increase their monthly benefit by up to 8% for every year they delay their Social Security application until age 70.
But the problem with blanket financial advice is that it rarely applies to everyone. In fact, a large percentage of retirees (possibly a majority) should claim Social Security well before age 70.
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Simplifying the complicated math of Social Security claiming decisions
If you were never married (or don't qualify for spousal benefits), maximizing your expected lifetime benefits from Social Security is easy. You should delay collecting benefits as long as possible up to age 70, provided you're in good health and can expect to live at least an average lifespan.
But when you throw a spouse into the mix, which confers spousal and survivor benefits, the claiming decision can become a lot more complex. Maximizing a couple's lifetime benefits isn't so straightforward.
In most cases, however, the best way to maximize lifetime benefits for a couple is for the higher-earning spouse to delay benefits until age 70. The lower-earning spouse should often claim as soon as possible, at age 62. There are many exceptions based on age differences and income disparity, but this is the most common strategy that works for couples. The closer a couple is in age and income, the more likely one will claim at 62 and one will claim at age 70 to maximize lifetime benefits.
A key reason that the strategy works out over the long run is that Social Security provides survivor benefits for widows and widowers, which can equal as much as their deceased spouse was receiving from the program prior to passing. As a result, the total amount collected in benefits for the couple increases over their joint lifetimes, as the lower-earning spouse receives a head start on their benefits despite the penalty for claiming early. That benefit will increase to a significantly higher amount if their higher-earning spouse passes away first.
Since only about 5% of the population approaching retirement age or in retirement were never married, this suggests that at least 47.5% of the population should file for Social Security well before age 70.
But there are other retirees who should consider taking Social Security before age 70 as well.
More good reasons to take Social Security early
There's a lot more to retirement than getting the most out of the government retirement program. Over-optimizing for theoretical mathematical outcomes can lead to poor personal finance decisions.
If claiming benefits earlier will allow you to retire comfortably without worrying that your portfolio will run out of money later in retirement, it can make sense to quit your job and start Social Security. The ability to enjoy an extra year or two of retirement can't be measured against the monetary gains of delaying Social Security.
Similarly, if you suffer from a medical condition or your health is declining, it can make sense to claim benefits well before age 70. If your life expectancy is shorter than average, it already makes mathematical sense to claim early. And if a year in your 60s will be far more enjoyable than a year in your 70s, taking the money from Social Security to enjoy that year can be an extremely smart use of your benefits.
These are not decisions to be made lightly or to backward rationalize claiming early, though. You should consider consulting a fee-only financial advisor to discuss your options and determine what makes the most sense for your specific situation.
