If you’re approaching retirement, you know that Social Security benefits alone won’t be enough to ensure you live in comfort. You’ll still want to receive as much in Social Security payouts as you can in order to complement your savings and help you live out the best retirement possible.
This brings us to one of the more common question we hear from clients: when to start claiming Social Security benefits. Our typical response? “There is no single answer, but we will help you find the right answer for you.”
As you may know, Social Security timing is complex. To start with, your benefits don’t just kick in at a fixed age. Eligibility starts at 62. Full retirement age, at 66 or 67, brings larger monthly checks. Holding out until the maximum age, 70, means even bigger payments. There are also individual variables to consider. They include age, marital status, life expectancy and retirement goals. For some, the decision can be a little like a Rubik’s Cube.
One rule of thumb when thinking about Social Security is that the earlier you tap your benefits, the smaller your monthly check will be. Those who begin at age 62, for example, will receive 25% to 30% less per month than those at full retirement age (66 for those born between 1943 and 1954; 67 for those born in in 1960 or later).
If you wait until age 70, your checks will be 32% bigger than if you start at age 62. However, waiting until after age 70 does not result in larger monthly benefits. For example, a person born in 1950 would receive $1,000 per month if he retired at age 66, but $1,350 a month at age 70.
The “wait-until-70” school has many adherents. While the Social Security system is troubled, and its benefits are modest for some recipients, there is no question that those benefits are more attractive now than they were several years ago. Particularly for those who can wait, the returns can outstrip those of safe investments like bonds, money market accounts and certificates of deposit.
By waiting until age 70 to start receiving benefits, you “earn” an additional 8% per year in exchange for your patience. These days, that leaves safe investments like Treasuries or CDs in the dust.
Life expectancy plays a key role in Social Security timing, of course. Those with a history of family members living into their 90s, for example, will be more comfortable waiting for those bigger checks. For those who may not live that long, taking the sure thing can make more sense.
For married couples, successful Social Security timing is more complex—and critical. Claiming benefits early lowers spousal benefits, while taking it late raises them.
To make matters more complicated, it’s possible for one member of a married couple to file for benefits at retirement age and later “suspend” those benefits. Using the “file-and-suspend” strategy, a wife could draw spousal benefits while her husband waits until age 70 to claim benefits for himself. If the wife’s monthly payments figure to be higher than her husband’s once she turns 70, she can wait until that age and then switch to her own benefits instead of her husband’s. This approach allows one spouse to collect benefits before turning 70, and then for husband and wife to collect maximum benefits.
Though Social Security planning can be complex, the stakes are simple. By getting it right, you can enjoy the most benefit possible, and that can make your retirement years better. So don’t be deterred—and remember that we’re here to help, so don’t hesitate to contact us.
