According to the Social Security Administration, more than three out of every five retired workers rely on their monthly payout to account for at least half of their income. That, arguably, makes deciding when to take benefits the most important decision that seniors will ever make.
Unfortunately, deciding when to take your payout isn’t a cut-and-dried issue. In other words, there’s no one-size-fits-all strategy that seniors can follow to determine what path will net them the highest possible lifetime payout. However, there are questions that can be asked, and answered, prior to taking Social Security that should help put you on a path to higher lifetime income from the program.
1. Am I in good health?
One of the primary reasons there is no one-size-fits-all claiming strategy is because none of us (thankfully!) knows our expiration date. If we did, we’d know exactly when to begin taking benefits in order to maximize our payouts from Social Security. This makes taking your benefit a little bit of luck and science.
The “science” aspect comes from asking yourself whether or not you’re in good health. The reason? The longer you’ll live, the more you’re incented to wait to take your payout.
As you might already be aware, retired worker benefits can begin at age 62 or any point thereafter. However, your benefit grows by approximately 8% for each year you hold off on taking your payout, up until age 70. All factors that impact your payout being equal, such as earnings history, work history, and birth year, a retiree claiming benefits at age 70 could take home up to 76% more per month than a retiree claiming their permanently reduced payout immediately upon turning 62. Of course, the trade-off is that the early claimant receives their payout for eight years before the age 70 filer collects a dime from Social Security.
If you’re in good to excellent health, and/or you have immediate family members that have lived into or past their 80s, you might be a great candidate to wait on taking benefits. That’s because if you live to be about 80 or older, you’ll net more in lifetime income by maximizing your monthly payout (i.e., waiting until 70, or at least until after your full retirement age).
On the flip side, if you have a chronic health condition, and/or your immediate family hasn’t lived to the average U.S. life expectancy of 78.6 years, an earlier claim might be worthwhile. Even though this might mean a permanent reduction to your monthly payout, it would boost your lifetime collection from Social Security if you live to, say, age 70 or 75.
2. Have I considered what’s best for my family?
Next, prior to taking your retired worker benefit, you’ll want to ask yourself what’s best for your family.
Although your Social Security retired worker benefit is a highly personal decision — after all, it’s based on your work history, earnings history, and birth year – your claiming age can ultimately impact your entire family.
For example, if you’re married and you happen to pass away before your spouse, your spouse would then have the opportunity to claim a survivor benefit that’s based on your work history. The condition being that this survivor benefit must be higher than what your spouse would receive from their own work and earnings history. If you waited until at least your full retirement age to begin receiving your payout, your surviving spouse will have an opportunity to maximize their survivor benefit. However, if you made an earlier claim, it’ll ultimately reduce the amount they can receive.
Furthermore, it just makes sense, when married, to have a game plan when it comes to Social Security. Generally speaking, couples will want to allow the income breadwinners’ payout to grow over time, thereby providing a greater boost to household income many years down the road. At the same time, having the lower-income spouse claim early could make sense given that it would provide some income to the household in the interim.
Long story short, deciding when to take Social Security is, more often than not, a family affair.
3. Do I really need this money now?
Lastly, you’ll want to really ask yourself whether you need regular income from Social Security to make ends meet right now.
More specifically, it’s worth pointing out that around 60% of retired workers wind up taking their payout prior to reaching age 65. This means that approximately three out of five retirees is accepting a pretty sizable permanent reduction to their monthly payout by claiming early. If there’s a valid reason, such as an inability to find work (and therefore no income stream), or a chronic health condition, then this early filing may very well make sense. But hindsight suggests that most folks would be better off waiting on their payout.
In June, United Income released a study that examined more than 2,000 senior households. The purpose was to map when seniors took their Social Security benefit versus when it would have been optimal to do so. What the analysis found was that most retirees chose to take their payout early, yet more than four out of five would have made an optimal claiming choice if they had waited until age 67 or later to begin taking benefits.
Also, don’t overlook the fact that the retirement earnings test could come into play if you’re still working and receiving a Social Security benefit. Though it can be tempting to claim early in the hope of doubling up on income sources, the retirement earnings test, which allows the Social Security Administration to withhold some or all of your benefits, may keep this ideal scenario from happening.
If you can answer these three questions, then you’re ready to make a smart and informed Social Security claiming decision.
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