When should you claim Social Security?

When it comes to Social Security and retirement, you may have conflicting viewpoints: On one side, you hope to start collecting your benefits as soon as you’re eligible, or maybe you’re concerned you’ll need that income sooner. On the other side, you know that if you wait, your monthly benefit amount will be greater.

While it does make sense to wait as long as you can, you may want to consider reevaluating your situation every year in retirement before deciding whether to continue delaying the beginning of Social Security benefits.

Because each individual, couple, widow, and widower has a unique lifestyle and unique income needs, a year-by-year evaluation prior to beginning benefits can be a smart approach.

One item you need for that annual retirement review is a current copy of your Social Security benefit estimate from ssa.gov. This provides personalized estimates of future benefits based on your actual earnings and lets you see your latest statement and your earnings history.

This article outlines a comparison of claiming now vs. later and offers key considerations as you review your strategy each year.

Let’s start with a hypothetical example: John Doe was born in 1960 and was earning $200,000 a year when he retired providing a Full Retirement Age benefit of $3,000. He decided to start receiving Social Security benefits as soon as he became eligible at 62, or five years before he would receive full retirement benefits. His monthly benefit in today’s dollars is approximately $2,100.

If he had delayed receiving benefits until he was 70, he’d receive about $1,620 more a month, or $3,720. And he would make up for the eight-year delay in not taking any benefits in about 10 years.

Unlike personal assets that can be exhausted, Social Security is a vast resource provided by the U.S. government. As long as you are alive, you should continue to receive your Social Security benefits and with a cost-of-living adjustment throughout your retirement years.

Your health can play a big role in helping determine when you should start taking benefits. Do your loved ones live long lives, or have most succumbed to illness before age 65? While it’s not the most accurate indicator of what’s going to transpire in the future, it may have some bearing, and therefore can be something you take into consideration.

If you’re in reasonably good health and anticipate a continued healthy lifestyle, that usually counsels in favor of waiting. If, on the other hand, you’re in poorer health and have concerns about longevity, that counsels toward drawing benefits sooner rather than later.

Another key factor is having other sources of income to help you live comfortably in retirement without needing Social Security benefits. You should consider the rate of return Social Security offers before claiming benefits: 6.25% – 8.00% (plus a cost-of-living increase).

Married couples may want to look at multiple factors when determining the timing for each spouse to claim Social Security benefits.

For example, if you’ve had lower earnings over your career, your Social Security benefits may be dramatically lower compared to a higher-earning spouse. It still may be wise for both of you to wait, if possible.

Not only does waiting increase the size of the benefit that the higher-earning individual personally receives, but it also increases the size of what’s known as the survivor’s benefit that the lower-earning spouse could draw if the other spouse passes away.

When it comes to when to claim Social Security benefits, it may be worthwhile not to focus primarily on the tax ramifications, but instead it may be wise to focus on working to help maximize the net cash flow over the remainder of a retiree’s lifetime. We believe you should work closely with your tax professional and financial advisor to assist in identifying the most appropriate claiming strategy and timing.