The age you claim Social Security could be one of the most significant decisions of your retirement plan. Most people become eligible for benefits at age 62, and it remains the most popular age for retirees to claim benefits. But you can increase your monthly payment every month you decide to delay benefits up until age 70. Still, fewer than 10% of retirees wait that long before starting Social Security.
Many people decide to split the difference, waiting until they reach full retirement age before starting Social Security payments. The full retirement age for most readers is 67, although those born before 1960 reached (or will reach) that milestone a bit earlier.
While waiting until 67 may seem like a great compromise, it's not the best age for many people to claim Social Security. Here's the unfortunate truth.
Image source: Getty Images.
You may be leaving money on the table
If you're claiming retirement benefits based on your own earnings record and have no plans to claim spousal benefits at some point, you're likely leaving money on the table. As mentioned, each month you delay benefits the more you'll receive in your monthly payment once you start.
There's an obvious trade-off. Each month you decide to delay benefits means one more month where you don't receive anything from Social Security. So, you'll have to live long enough to make starting later and receiving a bigger payment worth it. The good news is that a 67-year-old in average health or better can reasonably expect to live long enough to make delaying benefits until age 70 worth it, according to the most recent CDC life expectancy data.
It's important to note that the same calculation doesn't apply to spouses planning to claim spousal benefits. Those benefits max out at full retirement age. Even if you have to wait a few years before you'll be eligible to receive spousal benefits (because your spouse is still delaying benefits), it's usually advantageous to claim Social Security by your full retirement age.
If you delayed Social Security benefits until age 67, you should be willing to wait a bit longer
Waiting until the month of your 67th birthday and not one month longer doesn't make sense from a mathematical standpoint. Since you have the option to claim benefits any month after you turn 62, that means you have to decide whether to claim benefits or not each month thereafter. You should base that decision on your personal circumstances and account for the breakeven age for delaying one more month.
The breakeven age for delaying benefits from the month before you turn 67 to the month of your birthday is 81 and 11 months. But if you decided to delay until age 67, the breakeven age to delay just one more month is 79 years and 7 months.
The discrepancy comes from the fact that your benefits increase faster every month you delay past your full retirement age. So, you'll end up collecting more from Social Security in your lifetime if you keep waiting to start benefits as long as you live to the age you expected to live until when you turned 67. All things being equal, you should rationally be willing to keep delaying benefits past your full retirement age.
Circumstances may change between your 67th birthday and when it makes sense to claim your benefits. But you get the chance to make your claiming decision each month.
You might receive more benefits by claiming well before 67
If you're married (or you were previously married at least 10 years or your spouse passed away while you were married), you might end up collecting more in lifetime benefits by claiming benefits earlier, often as soon as you're eligible. That's because you might get a boost from claiming survivor benefits later.
A common retirement strategy is for the lower-earning spouse to claim Social Security benefits as soon as they're eligible, while the higher-earning spouse waits until age 70 to claim. That gives the couple some income in their 60s and guarantees the largest possible benefit for the surviving spouse later in life. The result is usually higher total Social Security income over the couple's joint lifetime, based on average life expectancies.
If you enter your 60s as a widow(er) or your ex-spouse of 10 years has passed away, and you remain unmarried, you can claim survivor benefits as early as age 60 while delaying your personal retirement benefits until age 70. Or, in some cases, it might make sense to claim your personal benefit at age 62 and wait until full retirement age to claim survivor benefits (when they max out).
These strategies can get you more from Social Security than simply waiting to claim benefits at full retirement age. Claiming at 67 (or your full retirement age if born earlier) makes sense for a small group of people: lower-earning spouses with a longer-than-average life expectancy who plan to receive spousal benefits instead of their personal retirement benefit. Others should carefully examine their options and choose one that best fits their retirement plans and circumstances.
