When do you plan on claiming your first Social Security check?
The choice is one of the biggest financial decisions you'll ever make. Retirees can start receiving retirement benefits as early as 62 years old, and as late as 70 -- with 66 currently being the "full" retirement age.
If you start at 62, you'll get 75% of your full benefits. Wait until 70, and you'll get a monthly check that's worth 132% of your full amount. That's a big difference. On the surface, it seems obvious that everyone should wait until age 70 to claim benefits.
In reality, the government chooses this formula because actuarial tables show that the lifetime payout for retired people is essentially the same no matter when they claim benefits.
But according to a 2009 paper from the Center for Retirement Research at Boston College, there's more to it than just that. As the authors state, "Choosing a claiming age is not simply a matter of maximizing the expected present value of lifetime benefits. Individuals who delay claiming also acquire additional longevity insurance ... [It] provide[s] the purchaser with valuable insurance against the risk of outliving their wealth."
The value of that extra "insurance" varies depending on your life circumstances. According to their research, here are the three times where it actually makes the most sense to start claiming benefits at 62.
1. Single men
If you've never been married, and you're male, you should claim Social Security at age 62 -- with a caveat. This doesn't pertain to women because researchers used historical data, and men have historically been higher earners -- making their payouts larger no matter when they claim.
One of the reasons for this is that these males don't have to worry about maximizing benefits for their partners in the event that they pass away.
But here's the caveat: Researchers broke out three different groups of people:
- The first assumes Social Security recipients have zero fear of risk (zero risk aversion) -- that these people are OK with uncertainty. We'll call them the Daring Ones.
- The second assumes a medium level of risk-aversion (a coefficient of 2). We'll call them the Practical Ones.
- The third assumes a high level of risk-aversion (a coefficient of 5). These are folks who want more certainty in what they'll get. We'll call them the Fearful Ones.
It is only in the first group -- the Daring Ones -- that it makes the most sense for single males to take Social Security at age 62.
The graph below demonstrates how much Social Security Equivalent Income (SSEI) you're missing out on depending on your risk-aversion level. The highest point on the graph (100% of ideal income) represents the best age to start claiming.
Note that the y-axis only goes from 75% of the ideal to 100% -- so the differences aren't as pronounced on an absolute basis as they might appear.
As you can see, the more risk-averse they are, the later these men should take Social Security. And if you're a women who bucks the historical trends (i.e. you made an above-average income during your working years), then this move is worth considering for you as well.
2. The lower-earning spouse in a dual-income household
As above, there are caveats to cover, here.
According to Social Security rules, if one partner earns less than the other (we'll say the wife here, only because it reflects historical trends), she will receive one of two types of benefits. She could claim her own benefit based on past earnings. Or, she could claim spousal benefits. Spousal benefits max out at 50% of the husband's full retirement benefit.
In the end, she'll receive whichever is higher, but there's a catch to spousal benefits: she must wait until her husband claims Social Security. Of course, if her own benefit is more than 50% of her husband's, this really doesn't matter. It also helps explain what researchers found:
Only when the lower earner's own benefit is 40% to 100% of the higher earner's does it make sense for the lower earner in a dual-income house to take benefits at 62. At the same time, the higher earner should wait until 69 to claim Social Security.
Researchers also found that the lower-earner should claim at 62 if:
- She will receive a Social Security benefit equal to 30% to 40% of her husband's, and is three or more years younger than him.
- She will receive a Social Security benefit equal to 0% to 30% of her husband's, and is five or more years younger than him.
Because this study was completed in 2009, some might think the findings to be null, as some popular loopholes were allowed then--like "File-and-Suspend"--that aren't now. But the researchers clearly state that they didn't take these loopholes into consideration in their research.
3. If you absolutely need it
This is the elephant in the room. The vast majority of people claim Social Security at 62 or shortly thereafter. The reason is simple: People haven't saved enough to survive on. Taking benefits is the most logical way to make ends meet.
In the end, living below your means and saving the difference can give you a lot more options. That can help you maximize how much you can spend during your Golden Years -- and how much you can get out of Social Security.
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