This might be the most asked question I receive. My typical response to this question is there are as many good reasons as bad reasons to file early, and, there are as many good reasons as bad reasons to file later. This article is written for single people who have never been married and married couples. Let me say at the beginning that there is no silver bullet answer to this question. Every situation is different. There are many variables.
You can literally leave as much as $200,000 on the table by not using the best claiming strategy.
If you are married, you need to consider this decision using your joint life expectancies. The question is not when should “I” file for benefits, but when should “We” file for benefits. The reason this is important is because the goal to planning your overall strategy should be to maximize the high earners benefit, coordinate the benefits between the spouses, and finally and perhaps most importantly is to maximize the survivor benefit. You can literally leave as much as $200,000 on the table by not using the best claiming strategy.
Life expectancies are increasing, and you need to think long term. Do not make this decision on an emotional basis. Many people make their claiming decision based on the premise that, I am going to take my benefits at 62 because I earned it and Social Security is going broke. For starters, Social Security is not going broke, so let’s take that off the table. Secondly, by understanding all of your claiming strategies, you are now able to make a cost/benefit analysis and have the peace of mind that you have made the right decision. You have once chance to get this decision correct. I would emphasize that this may be the most important financial decision you will make in retirement as it represents for most married couples a $1,500,000 annuity.
As always, the financial aspect of maximizing benefits is usually the primary driver. There are other variables to consider in an effort to maximize your lifetime benefits.
My advice to most single people who have never been married is pretty straight forward. Start benefits at your full retirement age (66 to 67) unless you need the cash flow now or you are in poor health. The advantage of delaying benefits is a key component to a married couple in order to maximize the survivor benefit. Since a single person who has never been married will not have a surviving spouse, it usually does not make sense to delay benefits past full retirement age. If you are currently single, and an ex-spouse, there is no advantage to claiming a spousal benefit past your own full retirement age.
Here are the issues you should consider when determining your optimum age to claim benefits:
Why Claim Benefits Early (Reduced)
- Poor health
- Limited earnings capacity
- You are the lower income spouse
- Mortality-short life expectancy. Do not expect to live to 80
- Cash Flow-need the cash
- Spouse and/or minor children who are entitled to benefits now but won’t be later. Children’s benefits stop at 19
- Your spouse will receive a higher benefit
- You have another government pension and want to file before other public pension begins-minimize the effect of the Windfall Elimination Provision or the Government Pension Offset
Why wait until Full Retirement Age 66 to 67
- Collect your full retirement benefits
- Annual Earnings Test goes away-can earn more than $17,640 without benefits being withheld
- Can take advantage of “restricted application” claiming option to maximize benefits if born before 1/2/1954.
- Can Voluntarily Suspend benefits
- Start to earn Delayed Retirement Credits
Why Claim Benefits Later (Increased)
- Cash flow from Social Security benefits are not as critical
- Plan on continuing to work
- Maximize survivor benefits
- Good/Excellent health-expect to live to at least 80
- Mitigate Longevity Risk
- Earn Delayed Retirement Credits-8% per year-up to a total of 32%
- You are the spouse with the higher income
- Retroactive benefits might be available
In any case, there is never a good reason to wait past 70 to file for benefits.
As a final comment, if you have determined that you made the wrong decision or for other reasons such as an inheritance or a new job, you didn’t know about when you made your initial claiming decision, you have 1 year to rescind that decision, and you can only do it once.
You can file a “Request for Withdrawal of Application” within one year of first claiming benefits on form SSA 521.
- Repay all benefits including spouse and children within the first 12 months of claiming
- Anyone who received benefits based on your application must consent in writing to the withdrawal and their benefits paid back.
- Medicare premiums or voluntary federal income tax withheld must also be repaid
Remember, dying is cheap, living is expensive. If you take the wrong benefit at the wrong time, it’s always smaller and it’s forever. Design your personal claiming strategy!