Back to the Basics: When Should We Claim Social Security Benefits?

When approaching retirement, one of the big questions you may be considering is when to file for Social Security benefits. Because most people can claim and receive benefits as early as age 62, but each year that you wait earns a bump in pay for the rest of your life, the decision can be confusing and anxiety-inducing. And while it’s tempting to file as soon as eligible, I encourage people to pause and take a deep breath before taking action. After all, the decision has an impact for the remainder of life, so it pays to consider the different variables. This begs the question then, what are the variables to consider?

First, it’s essential to understand some basics about how Social Security benefits work. Social Security retirement benefits are based on your earnings history, and the amount you receive will depend on when you start claiming benefits. You can begin claiming Social Security retirement benefits as early as age 62, but the amount you receive will be reduced if you start before your full retirement age (FRA). Your FRA is determined by your birth year and ranges from 66 to 67 years old. And if you claim benefits before FRA, this is considered early, and if you choose to continue working and earning wages after claiming Social Security early, this can limit the amount of Social Security income that can be received under what’s called the Earnings Test.

If you delay claiming Social Security retirement benefits beyond your FRA, you can earn delayed retirement credits, which can increase your monthly benefit amount by up to 8% per year until age 70.

Earnings History

When deciding when to claim Social Security benefits, married couples should consider both spouses’ earnings history. Each spouse is entitled to their own Social Security benefit based on their work history, and the amount they receive will depend on when they start claiming benefits. Further, a spouse with little earnings history, like a stay-at-home parent, may choose to file a spousal benefit based on their spouse’s earning history, which generally results in 50% of the higher-earning spouse’s benefit paid to the lower-earning spouse.

For couples who have similar earnings histories, it may make sense for each spouse to claim benefits at different times. For example, the slightly lower-earning spouse could claim benefits as early as age 62, while the higher-earning spouse could delay claiming benefits until age 70 to earn delayed retirement credits. When either spouse dies, the surviving spouse loses the smaller income but keeps the larger, thus having maximized the larger of the two benefits is very impactful.

However, for couples with a significant earnings disparity, like the stay-at-home parent example, it may make sense for the higher-earning spouse to delay claiming benefits until age 70, while the lower-earning spouse claims benefits early in order for the couple to enjoy some Social Security income while growing the larger benefit. This strategy can help maximize the couple’s overall retirement income.

Longevity and Health

Another factor to consider when deciding when to claim Social Security benefits is each spouse’s longevity and health. If one spouse has a significantly longer life expectancy than the other, it may make sense for that spouse to delay claiming benefits until age 70 to maximize their monthly benefit amount.

On the other hand, if one spouse has a significant health issue that is likely to shorten their life expectancy, it may make sense for that spouse to claim benefits early to maximize their overall retirement income. Naturally, this decision would be much easier if we knew how long we’ll live, but that’s not information that’s generally available. 

Consider Other Retirement Income Sources

When deciding when to claim Social Security benefits, it’s essential to consider other sources of retirement income as well. If a couple has significant retirement income from other sources, such as a pension or retirement savings, it may make sense to delay claiming Social Security benefits to maximize their monthly benefit amount while living on these other income sources.

However, if a couple has limited retirement income from other sources, it may make sense to claim Social Security benefits earlier to supplement their retirement income.

Consider Tax Implications

Finally, it’s essential to consider the tax implications of claiming Social Security benefits. Social Security benefits aren’t always taxable, but they may be subject to federal income taxes, depending on your overall income. If a couple has significant retirement income from other sources, claiming Social Security benefits early may result in higher taxes owed on all income sources including Social Security. As a general rule, the higher a couple’s income, the more reasons there are to be strategic about when to claim Social Security. To learn more about this, search for Provisional Income Formula. 

No One Size Fits All

Deciding when to claim Social Security benefits is an important and personal decision for couples approaching retirement, and as we’ve seen here, it’s not simple. It’s essential to consider both spouses’ earnings history, longevity and health, other retirement income sources, and tax implications when making this decision. A financial advisor or Social Security specialist can provide valuable guidance to help couples make informed decisions about when to claim Social Security benefits. The difference between a prudent decision and a hasty one can result in tens of thousands – or even hundreds of thousands – of lost income and wealth. This is why taking pause and seeking some guidance before claiming can be so valuable.