When to claim Social Security is one of the most important financial decisions that retirees make, yet few seem to give the timing much thought. The longer one waits to claim, the higher the monthly benefit. For a retiree with a short life expectancy or pressing financial needs, it may be best to claim benefits as soon as possible. But for many others, waiting to claim Social Security can substantially increase expected lifetime benefits and help reduce the risk of outliving wealth.
Once retired, those who qualify to receive Social Security can start collecting benefits at any age from 62 to 70. Someone claiming Social Security at the full retirement age (FRA), currently 66, receives a full benefit, known as the primary insurance amount (PIA). The PIA is based on a retiree’s earnings history, therefore, varying from person to person. Someone claiming Social Security at age 62 receives 75 percent of PIA, while someone claiming at age 70 receives 132 percent. Thus, someone whose PIA is $24,000 per year would receive annual benefits of $18,000 by claiming at age 62, $24,000 by claiming at 66, or nearly $32,000 by claiming at age 70. Claiming benefits at age 70, as opposed to 62, raises one’s monthly benefit by 76 percent.
Those who rely primarily on Social Security to pay for living expenses may have little choice but to claim benefits as soon as they’re eligible. However, those with enough savings can decouple the decision of when to retire from when to claim their Social Security benefits. The key factor in deciding when to claim benefits is life expectancy. The greater one’s life expectancy, the more beneficial it may be to wait before claiming benefits. Continuing to work should also be considered, since there’s an earnings test up to FRA that could reduce your benefits.
The “file and suspend” strategy
The “file and suspend” strategy lets a couple start receiving Social Security spousal benefits immediately while increasing their own future benefits. Under current law, one must claim their own benefits first before their spouse can claim spousal benefits. Using this approach, the primary earner files for benefits upon reaching FRA and then suspends receiving those benefits until a future date. The spouse can then claim a spousal benefit immediately. By waiting, the primary earner will receive a larger monthly benefit when they begin claiming. Thus, the couple receives a spousal benefit immediately while realizing the potential advantages of delayed claiming. This also provides a higher survivor benefit for the lower wage earner if the higher wage earner predeceases them.
Another approach is the “claim now, claim more later” strategy. With this strategy, the higher wage earner files a restricted claim to receive his or her spousal benefit from the lower wage earner’s benefit. The primary wage earner can still receive the 8 percent per year delayed retirement credits for waiting to claim. The lower wage earner collects his or her own benefits. Note that only one spouse can claim a spousal benefit at a time. The rules need to be followed carefully for eligibility.
Next steps
When thinking through your Social Security options, start by gathering information on your specific situation. On the Social Security Administration website (ssa.gov), you can download a personal Social Security Statement, which provides your earnings history and estimate of your future monthly benefits. You can also estimate the monthly benefits you would receive by claiming Social Security at various ages.
Consider your Social Security choices in the context of your overall financial picture. Because each individual situation is unique, you may want to consult a financial adviser.
For more information, contact Merrill Lynch Financial Adviser Marie M. Theilade, CRPC, senior vice president of the Santa Rosa office, at (707) 575-6338 or http://fa.ml.com/marie.theilade.
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