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When should you claim Social Security retirement benefits—and why?

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AUTHOR: Jonathan Clements on 4/04/2021
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cesplint
3 months ago

We don’t have pensions, we have more income than needed, spouse is still working by choice at age 71 (will retire with his boss in 2 years), so he deferred and I will wait until FRA. I should add that his job involves travel to fun places, and I work remote so we don’t have pent-up travel ambitions. Nice that when one continues to work, SS tops up the payout once a year to include extra months one continues to work.

Mark Eckman
3 months ago

My answer for years was to continue working wait until FRA, then retire and wait till 70 to collect. I retired at 66 and took my SS at FRA, 66 and 2 months. My wife took hers at FRA a few months later and collected the spousal benefit. Had I known she would die after collecting just 9 payments, I believe I would have retired earlier and we would have spent more time together. Relationships are the key to a happy retirement, not when you collect Social Security.

R Quinn
3 months ago

A question with no answer. Regardless of the age it is started, the payments are actuarially equivalent more or less. Worrying about breaking even makes no sense to me.

You take the payment when you need it most which for most people is before age 70.

Unless your spouse is much younger than you, I don’t see the value in waiting to 70 as survivor income could be handled other ways like life insurance without the risk of not reaching age 70.

If possible, wait until FRA, start the payments and if not needed, invest them until the income is needed – IMO (non-traditional) of course.

Last edited 3 months ago by R Quinn
parkslope
3 months ago
Reply to  R Quinn

Is there anything special about claiming at FRA versus other ages? For example, is there any disadvantage to claiming one month before one’s FRA besides a slightly smaller benefit?

OldITGuy
3 months ago
Reply to  parkslope

I’m no expert, but the only two things that come to mind are: first, the elimination of the penalty to your social security if you continue working part-time. Second, 50% of FRA is the max amount for the spousal benefit as long as both of you are alive.

parkslope
3 months ago
Reply to  OldITGuy

Thanks.

While there is a SS benefit penalty for those who claim before their FRA, it is eliminated when they reach their FRA, so it doesn’t negatively impact early claimers in the long run.

Although I’m not positive, it also doesn’t appear that the spousal FRA is reduced if the higher-earning spouse claims before they reach their FRA (the higher-earning spouse does have to claim before the lower-earning spouse can claim spousal benefits). As is the case for claiming one’s own benefits, the spousal benefit is reduced for the lower-earning spouse if he or she claims early.

Thus, from a practical standpoint, it appears that the FRA is nothing more than one of the ages between 62 and 70 when one can begin claiming SS benefits.

Last edited 3 months ago by parkslope
Jeff Bond
3 months ago

I was still working when I hit my FRA and continued to work for another year. I’m in the camp of waiting until 70. Since I’m 5 years older than my wife, and women live longer, she’s likely to be without me for as much as 10 years. I feel by starting at 70 I’m maximizing her future SS benefit.

JGarrett
3 months ago

If I talk to 10 different people, all who I respect, I get 10 different answers. I have concluded it is individual specific.

Ormode
3 months ago

Well, are you trying to minimize your income for tax purposes, or do you need to maximize it so you have enough money to live on? That is a very important consideration.

Nuke Ken
3 months ago

The Open Social Security calculator continues to tell me to take SS before I reach 63. This is true even when I input part-time earnings (in excess of the earnings limit) to age 70. I believe the calculation is valid for my situation.

Rick Connor
3 months ago
Reply to  Nuke Ken

Ken, did you run it as a single individual? Based on my experience with the tool it seems like an unusual result.

Nuke Ken
3 months ago
Reply to  Rick Connor

Rick, I ran it based on my actual circumstances: married, wife a few years older and only eligible for a spousal benefit (earned benefit = 0). I imagine only a small percentage of couples are in the same situation. As I said, I do accept the results of the calculator. Whether I will follow its advice to a tee is another question. It’s given me a lot to think about.

Rick Connor
3 months ago
Reply to  Nuke Ken

Ken, That makes more sense. With a wife having $0 benefit, it may make actuarial math sense. The other option I like playing with is the alternative actuarial tables – changing those to something more representative sometimes makes a difference.

Nuke Ken
3 months ago
Reply to  Rick Connor

Rick, thanks for the tip. I’ll have to play around with that option as my wife’s family tends to be very long-lived.

GaryW
1 year ago

If you assume that the alternative is investing the money with a return equal to the rate of inflation, the break-even point would suggest that it’s better to wait until you are 70. If you assume a return on your investment that’s modestly above inflation, the choice becomes murkier. The SSA amount is much more predictable, however. (I’m don’t really worry about the SSA trust fund running out, it’s an accounting construction that is, in effect, just a part of the national debt and I find it very unlikely that a bunch of politicians will tell tens of millions of voters that their income is going to be cut substantially.)

In the end, I decided that it didn’t really matter much when I started taking SS benefits, I was unlikely to outlive my money in any case. I started benefits in 2014 at my FRA of 66. I couldn’t have predicted it, of course, but my investment returns since then have been much better than I used in my calculations, despite the recent downturn.

There are other considerations. My sister is 64 and her FRA is 66 and 10 months. She has a state pension and, like me, isn’t likely to outlive her money in any case. A couple of years ago she was diagnosed with breast cancer. She completed chemotherapy about 18 months ago and her prognosis is good. Statistically, however, her life expectancy is less because she has had cancer. She is wondering whether she should start getting SS benefits now. I think that it doesn’t matter much in her case either. Her pension covers all her expenses, and she hasn’t touched her substantial savings. She could take the SS benefits and donate them to a couple of non-profits she is very involved with.

Klaatu
1 year ago

I thought this was settled: One waits until full retirement age and perhaps a bit later (to claim over 100%). Of course, others may want to claim earlier due to cash flow needs but they should be aware of the downside.

John Yeigh
2 years ago
Dan McD
2 years ago

There are many helpful perspectives in this thread. Mostly because, as many of the comments here suggest, the decision is personal and not one-size-fits-all.

For me, I’ll delay as long as possible for the future benefit increases and until then I’ll fund retirement spending from other sources. If I die early I won’t care if I’m not receiving the benefit. If I live my ‘future self’ will be doubly happy!

Last edited 2 years ago by Dan McD
David Lancaster
3 months ago
Reply to  Dan McD

Our plan is to wait until 70 to claim and use our retirement savings in the interim. I have a fairly high minimal balance in mind that if reached due to a market downturn will trigger my wife (the lower wage earner) to claim to increase our monthly income. I still plan delaying my claiming until 70 as there is a strong chance that she will live to > 100 years old.

Last edited 3 months ago by David Lancaster
R Quinn
3 months ago

Why risk your retirement savings? Why not claim at full retirement age with lower savings withdrawals? Is the difference in possible future SS income that great to spend more assets today? Interesting bet on 100 years plus.

Randy Dobkin
3 months ago
Reply to  R Quinn

Why claim at FRA when you could claim anywhere from 62-70?

Lehman Brown
2 years ago

Well, I think between FRA and 70. I’m going to be FRA soon and seriously thinking about it. I could wait but there are things I’d like the money for now.

Joe D'Alessandro
2 years ago

I’ve always read it’s best to wait until 70 to claim. I planned retirement not needing social security at all. I have two government defined benefit retirement plans (one with a guaranteed COLA escalator), government paid health insurance when I retire at 62 to carry me to Medicare, and a deferred comp (403b and 457b) balance in the seven figures. When I mentioned to my financial advisor that I guess my wife and I will wait until 70 to claim, he agreed I don’t need it, and said why don’t I just take it at 62 and spend it? Enjoy the money. I never looked at it that way before and that made sense to me. I ran the numbers and I would have to live to 78 before I would “loose” money by taking early. But the early retirement years are the healthiest. I still think for most people, delaying is best if they can. But it’s really situational.

Jeff
3 years ago

There is no one way for this. It all depends on your situation. Like your age and health. The need for the money due to job loss. This goes for spouses also. Everybody seems to talk about waiting till your 70, but for a lot of people that’s just not possible. So again there is no one size fits all. It’s what works for you and yours.

tshort
3 years ago

I’ve modeled this question pretty thoroughly for our situation, with me eligible this year, and wife 8 years younger. We have a good sized nest egg built up, and don’t “need” the SS money to do what we want to do when she retires in the next 12 months.

We both have good family longevity histories. Using that to establish a planning age, I modeled the total combined cash payouts we’d receive at various permutations of claiming age and mortality age for both of us.

Ignoring unlikely scenarios (e.g., we both die at 70, which would be over 20 years earlier than expected), I looked at the difference in total payout for the various permutations, and concluded that it would be at most around 14%, and more likely less than 10% less than the calculated maximum (both claim at 70; both live to max planning age).

Based on that, I’ve concluded that the amount we’d “give up” by taking an early claiming strategy for me and a wait and see approach for her is not enough to worry about. For us, it’s more important to have fun early in retirement and minimize the anxiety caused by decumulating our nest egg and watching its balance fluctuate solely on returns and interest/dividends.

I encourage everyone to look at total expected return of their SSA payments and decide whether a delayed claiming strategy is worth the extra money versus an early strategy with its reduced decumulation stress.

BenefitJack
3 years ago

Sorry for the length of this post. This is an area of great interest to me over my 40+ years of experience in corporate employee benefits.

Mike Piper is a great resource – see his book https://www.amazon.com/Social-Security-Made-Simple-Retirement/dp/0997946512 It was at my library.

See also recent Morningstar post: https://www.morningstar.com/articles/1035566/mike-piper-delaying-social-security-not-always-a-good-deal

I like Steve Spinella’s comments. And, I would add a second, perhaps related “freedom” consideration.

Some have the freedom to consider delayed claiming due to their combination of pension and Social Security (@ age 62 or whatever age they decide to start retirement income payouts) where they would have guaranteed, inflation-indexed income that was more than adequate to meet everyday financial needs in retirement (the retiree and her spouse (if any)). For those individuals, delayed claiming becomes an investment decision, not one that affects the household’s ability to maintain their pre-retirement standard of living.

Without that “freedom”, delayed claiming should always be a consideration. That is, delayed claiming should be considered as an alternative to the purchase of a single premium immediate annuity or other forms of insurance that can be structured to provide guaranteed, inflation-indexed income.

To that end, Congress could incorporate a variety of behavioral economics prompts/choice architecture in the claiming process. So, beneficiaries would retain full control, but, they aren’t left to their own devices and biases.

There are many reasons why I feel the federal government needs to provide more structure and guidance. Here are two:

Jack

Steve Spinella
3 years ago

A couple assumptions:
1) We only consider this question if we have the freedom to wait.
2) If we have the freedom to wait, it probably doesn’t matter. Lucky us!
Therefore, wait. It’s a small form of longevity insurance.
And if we can’t stand waiting? This is probably not our biggest problem.

Mike Zaccardi
3 years ago

In general, deferring to age 70 makes sense to reduce longevity risk. As with many aspects of financial planning, managing risk is extremely important. While it might be more likely you’ll make out better by taking it before 70 (i.e. if you are a black single male who is likely to live shorter than a married white woman), you still need to be considerate of the chance you live a long time.

And it can make even more sense for a healthy couple to delay taking benefits due to the higher chance at least 1 will live to 90+. Today, a 65yo couple has a 49% chance 1 will live to 90+!

Last edited 3 years ago by Mike Zaccardi
R Quinn
3 years ago

When you absolutely need the income and not before and especially not early under the illusion SS won’t be there for you later.

johntlim
3 years ago

One of the best (if not the best) Social Security calculators to answer this question is provided by Mike Piper for free here:

https://opensocialsecurity.com/

Edwin Belen
3 years ago
Reply to  johntlim

Echo this but am trusting as I can’t figure it out myself.

Steve O
3 years ago

SS as per an actuary example suppose individual would receive:
$1500 per month at 62
$2000 per month at 66
$2700 per month at 70
Then calculate using the mortality tables go to 110.
The actual mortality adjusted present values are as follows:
At 62 $375,138
At 66 $319,110
At 70 $363,561
Notice all the numbers are basically the same.
In my opinion forget break even because the following are not considered;
subtraction of not taken SS benefit
inflation
15% SS federal tax savings
Fun when you are younger !!!!!

The only reason to wait to 70 is to assure larger benefit for remaining spouse.

We split the difference for SS C at 62, S spousal at 65 then S at 70.
S waiting to 70 assures larger benefit for C when S passes.
The joint survivor pension and S 70 SS yields annual $100 k for C.

We retired at S 62 and C 59.
Action use 12% IRS bracket to harvest DRIP capital gains tax free until 70.

Since 1/1/16 retirement portfolio up by 1 million with (30 S, 60 B, 10 C)
Now (15 S, 55 B, 30 C) adjust after the stock cliff falls into the ocean
Why play the stock cliff game when you already won, scuba the ocean.

Now with scamdemic no travel or scuba so no need for travel money.
Planting a large garden for grand solar minimum.

9-30-2015 to March 2020 we traveled nine months each year.
This is an excellent example of why we retire to have fun.

Now governments take away our freedoms for unscientific reasons.
The same evil governments could take away SS for no reason.

Another example which closely fit our situation :
https://www.gocurrycracker.com/reader-financial-review-scared-death-early-retirement/

Last edited 3 years ago by Steve O
Catherine
3 years ago

Unless you have reason to believe you are not long for this world, avoid the “haircut” for the four years prior your Full Retirement Age. Especially if you are currently making good money and can keep that going those last years. You’ll get 35% less at 62 than your FRA benefit, if you were born in 1960 or later.

Between FRA and 70, it depends.

Your ultimate benefit rises each year in large measure because you also lose the money you would have collected. My brother likes to compare it to a sheet of paper. At 66, your paper is 8 1/2″ tall. At 70, the paper is turned 90 degrees and now 11″ tall. Roughly the same amount of money (the area of the sheet of paper) comes your way, actuarially. Planning as an individual, you reach a crossover in your early 80’s when it turns out that it’s better to have started later. But if you don’t live long, then you’ve left your contributions on the table.

David Powell
3 years ago

I’m aiming to start after full retirement age, ideally at 70. Where else can you find a near-certain 8% increase/year on a low-risk, inflation-adjusted income stream? With advances in diet, fitness, and medicine translating into long-term increases in U.S. longevity, delaying Social Security is one way to hedge the risk that we will outlive our retirement savings.

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