If you’re planning for retirement, you’ve probably heard this warning many times—don’t claim your Social Security benefits early. Social Security benefits can be started as early as age 62, but retirement articles and advisors inevitably recommend waiting longer—at least until your full Social Security retirement age (this likely is 66, 67 or somewhere in between—consult a Social Security retirement age chart if you’re not sure of yours). Better yet: Wait until you turn 70. Waiting maximizes the average retiree’s total Social Security benefits.
While that’s true for most retirees, waiting isn’t ideal for everyone, says Martha Shedden, CRPC, RSSA, president and co-founder of Registered Social Security Analysts (RSSA).
Claiming before you reach your full retirement age could be a solid option if any of the following apply…
People who claim their benefits early receive smaller monthly Social Security payments, but more of them. Example: If you claim at age 62, you’ll receive 60 more payments than if you waited until 67. But, assuming that 67 is your full retirement age, each of those payments will be 30% smaller—so you would receive $2,100 instead of $3,000 each month.
Determining whether more but smaller monthly payments or fewer larger ones adds up to more dollars overall depends on how long you live. The typical 62-year-old American man today is expected to live to 81…the typical 62-year-old American woman, to 84, according to Social Security Administration actuarial tables.
No one knows for certain how many years they have left, but by the time claiming Social Security benefits becomes an option at age 62, we often have a clue—specifically from our own and family health details and longevity of our close relatives. If these clues suggest that dying before age 79 is likely, then claiming early is a reasonable option. The longevity calculator at LivingTo100.com can help with this estimate.
Exceptions: Two situations when it’s probably worth waiting even if you have a short life expectancy…
You’re married and earned significantly more than your spouse. Your spouse likely will qualify for a “survivor’s benefit” based on your earnings after your death…but if you claim early, the size of that survivor’s benefit will be reduced. Waiting might cost you money, but it could earn your widow(er) much more.
Your top priority is reducing risk, not maximizing returns. If you don’t have an annuity or traditional pension, your Social Security benefits might be the only component of your retirement portfolio that’s guaranteed to supply income as long as you’re alive. Waiting to claim increases the size of these guaranteed benefits, thus reducing the risk that you’ll outlive your retirement assets.
If claiming your Social Security benefits early is the only realistic way to pay your bills, then go ahead and claim. Claiming early beats going into debt, especially if that debt carries steep interest rates.
That said, if you can continue to earn income rather than start your benefits early, consider doing that instead. If you can’t find work in your field, even an unglamorous or part-time position might pay enough to allow you to delay the start of your Social Security benefits for a few years.
Warning: If you start your Social Security benefits before your full retirement age but also continue to have more than $22,320 in earned income during a year, a portion of your benefits could be withheld due to the Social Security earnings test. These withheld benefits aren’t lost forever—you’ll get them back in the form of higher monthly benefits after reaching full retirement age—but this withholding still can cause problems for employed people who claim their benefits early to cope with a pressing budget shortfall.
Many widows and widowers are eligible for two different Social Security benefits—their own retirement benefit based on their earnings history…or a “survivor’s benefit” based on their late spouses’ earning history. Survivor benefits can be collected as early as age 60. They can’t claim both at the same time, but they can claim one and later switch to the other…and that opens the door to a strategy that includes claiming early.
In this strategy, the widow(er) starts only her own benefit at 62 or only the survivor’s benefit early at 60, then switches to the other benefit as soon as it reaches its maximum size. When will that maximum size be achieved? Benefits based on one’s own earnings reach their maximum at age 70…but survivor benefits max out at full retirement age, which for today’s retirees is 66, 67 or somewhere in between, depending on year of birth. Rule of thumb: It is usually best to start the smaller of these two benefits early and let the larger of them grow, though this choice can get complicated when both benefits are roughly similar in size.
Older parents take note—if you’re receiving your Social Security benefits and you still have young children, those children could qualify for benefits of their own based on your earnings history. To be eligible, your kids must be unmarried and younger than 18…or as old as 19 but still in high school. Your spouse might qualify to receive benefits as well if he/she is caring for one or more children age 16 or younger—even if your spouse is not yet 62 and thus too young to qualify for Social Security’s standard spousal benefit. Each of these family members could receive a monthly benefit equal to as much as half the benefit you receive, though there are caps that can limit the total take for large families. These extra benefits can provide a powerful incentive for these family members to start their benefits early—the younger your kids are when you start your Social Security benefits, the more monthly payments they’ll receive before they’re too old to qualify. Important: Disabled children can qualify for benefits even after 19, if certain conditions are met.
Claiming early to obtain family benefits can be a complicated decision. One factor worth considering is how many extra payments would be received. Example: If there’s only one qualifying child and that child would receive only a handful of checks before graduating high school, that’s probably not sufficient to sway a claiming decision. But if there are multiple kids who will qualify for several years, that could be a good reason to do it.
Warning: Older parents often have much younger spouses. If that’s the case and the older spouse has significantly higher career earnings than the younger one, waiting to claim could be the smart move even if it means missing out on family benefits—waiting will increase that younger spouse’s future survivor’s benefit.
The following are flawed reasons for claiming early. They may sound good, but don’t be swayed…
“Social Security is going to run out of money—you might as well get what you can ASAP.” Social Security is not going to run out of money…at least not completely. Theoretically, Social Security benefits could be cut by perhaps 20% starting in the 2030s, but that’s not likely to happen. Even if it did, steps almost certainly would be taken to protect people who already are in or near retirement age.
“You can start your benefits early, invest the money and come out ahead.” This makes some superficial sense—average annual stock market returns exceed the annual Social Security benefits increase you receive by waiting to claim. But that’s not a fair comparison—stock market returns are volatile and uncertain, while waiting to claim provides what amounts to a guaranteed return plus inflation adjustments.
“The claim-early versus claim-late math is pretty close, so why not just go ahead and claim early?” For many people the math is indeed close, but claiming later provides a benefit that goes beyond the dollars and cents—peace of mind. Outliving one’s savings is among retirees’ greatest fears. You can’t outlive your Social Security benefits—they continue as long as you’re alive—so maximizing these benefits minimizes longevity risk.
