When Should You Claim Social Security?

For many years Social Security benefits were said to be one leg of a three-legged stool consisting of Social Security, private pensions, and savings and investment. With private pensions becoming less common, many people entire retirement with a stool that only has two legs. Now more than ever Social Security benefits are the foundation upon which individuals can build additional retirement security through personal savings and investment. The base of the Social Security foundation or “floor” is not a fixed number and is determined by when you begin taking benefits.

One of the most important decisions you need to make is when building your retirement income plan is when to claim Social Security. The benefit you receive is based on an average of the highest 35 years of earnings in which you paid Social Security payroll taxes, as well as on the age when you claim benefits. 

Married couples have additional claiming options, including spousal benefits and survivor benefits.

Your benefit would be reduced or enhanced based on claiming Social Security at age 62 (the earliest age) or waiting until age 70. 

You can match up your year of birth to see what your full retirement age (FRA) is and the effect of claiming early or delaying claiming has on your benefit.

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Source:  Social Security Administration

Not only does Social Security provide longevity protection, because benefits continue throughout your lifetime, it also provides some inflation protection and spousal protection.

For example, let’s assume you have a hypothetical $2,000 primary insurance amount (PIA) and were born in 1960 making your full retirement age 67. The chart below illustrates the change in benefit amount based on the age you decide the claim. In this example, the difference in annual benefits received at starting at age 62 and 70 is nearly $13,000 per year.

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If you do choose to delay claiming your Social Security benefit to increase your monthly benefit, you must use existing savings, 401(k), IRA, or taxable assets, to cover current expenses and “bridge the gap” between when you retire and when you begin taking benefits. In effect, you are “buying” an annuity from Social Security with these savings and taking advantage of the best deal around, especially in today’s low interest-rate environment. 

Not everyone has the luxury to be able to afford to delay receiving social security benefits, but for those who can, it is a strategy you should strongly consider. Waiting to claim Social Security significantly will affect your own lifetime benefits, and could also impact surviving spouse benefits as well. Deciding when to claim Social Security is a nuanced decision and should be considered when you are creating your plan from creating an income in retirement.

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Also see: Is Social Security Going to Run Out?

By Gage Paul, CFP®, RICP®, EA 

Questions? Email us at info@westernreservecm.com

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