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Should you claim Social Security early and get a greater number of smaller payments or do you wait until your full retirement age or later to claim the biggest possible payout?
Timing Social Security can be tricky, but as the population is generally living longer, the best strategy is to wait as long as possible for the biggest benefit possible, financial advisers said.
There’s the notion of a break-even date – how long do you have to live for the two strategies to balance out? The argument is set up this way: do you claim more, small payments for longer or hold out for bigger checks for a potentially shorter amount of time until you die?
Read: This country could teach America a lesson about Social Security
“The break-even date is only relevant if you know the death date,” said Eric Bond a wealth adviser with Bond Wealth Management. “In general, delay as much as you can.”
You can begin claiming Social Security benefits at age 62, but the amount you receive will be less. Full retirement age is 67 for those born after 1960. Waiting until age 70 would give you 132% of your full retirement benefit amount.
“If you wait until age 70, break-even is around 83,” Bond said.
SSA.gov has calculators that help determine your Social Security benefits and how much money you’ll receive at different ages. Your benefits are based on your 35 top earnings years of your working lifetime. The Early or Late Retirement calculator shows how waiting longer to claim retirement benefits will substantially raise the dollar amount of your checks.
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Your break-even age also depends on your tax situation and how inflation may affect the purchasing power of your benefits, financial advisers said.
“Tell me a time in history when things have gotten cheaper,” Bond said.
To determine your Social Security timing, look at your health history and your family’s health history. Also, consider claiming your spouse’s benefit amount (or ex-spouse if you were married at least 10 years), Bond said.
“Obviously we’re living longer so we should plan that way,” Bond said. “We all need to keep working longer than we thought.”
“Most people who claim at 62 either didn’t know better or needed the money. Sometimes you have to take it,” Bond said.
The number of people who are claiming Social Security benefits at 62 has been dropping in recent years, according to Wade Pfau, author of “Retirement Planning Guidebook.”
In 2021, 24% of recipients claimed Social Security at 62. That’s down from 2011, when more than half of recipients claimed at the earliest age, according to Pfau.
Even the argument that a retiree could claim the benefits early and invest those funds to top the larger benefits received later is faulty, Pfau said. Most retirees would not be investing that aggressively in retirement and retirees must fund living expenses or spending from those assets at the same time, he said.
Of course, there’s no easy answer, which is why the debate rages on.
“It’s really different for everyone,” said Derek Miser, chief executive officer of Miser Wealth Partners.
For married couples, it makes sense to delay the benefits of the spouse with the highest benefits, Miser said.
“Social Security is not a women’s benefit. It’s a male benefit. Women tend to be underpaid and may be out of the workforce for a time,” Miser said. “You need to figure out the impact of deferring the breadwinner’s benefit and the best time to claim that.
That will be the survivor’s benefit.”
The debate about Social Security timing is complicated by the fact that the future solvency of the benefit system is at risk. The trust fund that pays out benefits to retirees and survivors, will face insolvency in 2033, at which point beneficiaries of that program would get 77% of scheduled benefits.
Read: Social Security is now projected to be unable to pay full benefits a year earlier than expected
“What Social Security will look like in 2033 is unknown. No one wants to challenge this 80,000-pound elephant sitting in the room,” said Miser.
The risk of Social Security benefits being cut is real. That adds to planning complications, Miser said.
For example, if you’re a new retiree at 62 in 2033, you would be getting 25% cut due to taking Social Security early, and then getting 23% reduction in your payout due to benefit cuts
“That’s a big cut,” Miser said.
“A 45-year-old today will see a different Social Security than their parents,” Miser said
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