Should you claim social security benefits early or later?

Dying is cheap, living is expensive!

The most asked question I receive is, “Should I claim benefits early or wait?” My answer to that question is that every situation is different and there are no rules of thumb to answer that question. The question I would then ask is do you expect to live to 80? If the answer to that question is yes, then you should think more long term than short term when developing your claiming strategies. Why is age 80 important? That is approximately the breakeven age at which total benefits from claiming later surpass total benefits from claiming earlier.

There are as many good reasons as bad reasons to claim early. Conversely there are as many good reasons as bad reasons to claim later. Instead of making an emotional decision, make an informed decision. Social Security benefits are one piece of your overall financial retirement planning and in most cases a substantial piece of that planning. Just because you can claim benefits does not mean you should. Let’s look at this question from a single person’s perspective and a married couple.

Generally, the latest a single individual should file for their Social Security benefits is at their full retirement age which ranges between 66 to 67. The main reason for claiming at your full retirement age is you are not purposely delaying benefits to increase your benefit so you can leave a higher benefit to a spouse when you pass away. The main reason to wait until full retirement age is that when you reach that age, the annual earnings limitation goes away. If you claim benefits before your full retirement age, your benefit will always be reduced, and you will be subject to the annual earnings limitation until you reach your full retirement age. The annual earnings limitation for 2023 is $21,240. So why might you file before full retirement age? Assuming the annual earnings limitation is not in play, you need the cash flow, or your health is not good. Both valid reasons, and this is why I say every situation is unique.

Let’s look at a married couple. The average couple will receive approximately $1,500,000 over their joint lives. It’s imperative that a couple consider their joint life expectancies instead of looking at their own life expectancy individually in a silo. The process to develop a strategy for a couple to maximize total lifetime benefits is to:

1. Maximize the high earner benefit
2. Coordinate the benefits between the spouses
3. Maximize the surviving spouse’s benefit.

This is where it gets a little more complicated.

To determine the best filing age for both, all the following issues need to be considered:

1. Health
2. Cash Flow
3. Annual Earnings Limitation
4. Restricted Application
5. Retro Active Benefits
6. Delayed Retirement Credits
7. Are children involved?
8. Projected earnings if prior to full retirement age

After considering all the above, now is when you ask the question, do you expect to live to 80? One or both may say yes. This will help determine which of the many strategies available to you is the right one for you.

You can see from the variables listed above, it’s almost impossible for you to project the best filing age without the proper analysis. There could be as much as a $200,000 difference between filing earlier or filing later. Your Social Security claiming strategy is a big decision in your overall financial retirement planning which you only get one chance to make. It’s also probably a large part of your retirement income stream. Which age is the best for you?

Remember, by taking the wrong benefit at the wrong time, it’s always smaller and forever!