Since April is National Social Security Month, I thought it would be helpful to cover when to claim your benefits and how to claim them, which I’ll cover in next week’s article. There tends to be an awful lot of advice flying around regarding when you should claim Social Security. The most common answer I hear from other advisors is that you should wait until age 70. That’s not always the case. It is important to realize that the benefit is intended to be the same based on actuarial life expectancy, whether you claim at age 62 or 70 or any month in between. The reality is that we don’t live to actuarial life expectancies, and that is what creates confusion around when to claim your benefits.
So why does everyone suggest waiting until age 70 before claiming benefits? For each year you delay taking your benefits beyond age 62, your benefits increase by 8% per year. That can add up to a very big difference in the total monthly benefit you can receive each month, so for obvious reasons, that idea is very appealing to many people. Here are some factors to consider to help you determine when to claim.
1. Your health
This is the most obvious factor. The longer your life expectancy, the longer you should wait to claim benefits. The break-even for ages 62 versus 67 is age 78 and 79, and the break-even for 67 versus 70 is age 82 and 83. This is the technically correct answer. It’s not to say that if you think you are going to live a long time, you should necessarily wait until age 70. There are many other reasons to claim it earlier.
2. Your current savings
The amount of money you have saved for retirement is a major determining factor for when you should claim. The more you have saved, the longer you can potentially afford to wait before claiming Social Security. An 8% annual benefit increase is most likely more than you’re going to get on your conservative investments, so take advantage of it. Conversely, if you haven’t saved a lot, then you may need to take money earlier even if you expect to live a long time.
3. Your spouse’s Social Security benefits
Depending on what your spouse expects to receive in benefits may help determine both when and how you should claim your Social Security benefits. This includes ex-spouses if married for 10 or more years. Your spouse has the option of taking their own benefits or 50% of yours, whichever is higher.
4. Your lifestyle both now and in the future
What’s more important to you: getting a higher total benefit by waiting as long as possible or having use of the lesser benefit now when you can potentially enjoy it more? Again, even if you expect to live a long time, you may not care as much about having significantly more income at age 85 than you do at 67. If you plan to travel, for example, then the money today may enhance your retirement experience more than it will at an age where you may not physically be able to do all of the things you can today.
5. Your spouse’s future needs
Though you may not expect to live a long time, you need to consider if your spouse will. This is particularly important if your benefits are dramatically different. Once you die, your spouse gets the higher of your Social Security or their own, not both. If you want to maximize the benefit to them, assuming you don’t have much life insurance, then you may want to consider waiting to improve their income for the remainder of their life.
As you can see, there are a lot of considerations surrounding when to claim Social Security. Therefore, you may want to consider discussing them with your financial advisor before you decide. Next week, we will go into more detail about how to file for Social Security benefits. For more information, download a “4 Crucial Social Security Facts” guide by visiting https://www.reichassetmanagement.com/ssfacts.
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Reich Asset Management, LLC is not affiliated with Kestra IS or Kestra AS. The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. To view form CRS, visit https://bit.ly/KF-Disclosures.
Eric is President and founder of Reich Asset Management, LLC. He relies on his 25 years of experience to help clients have an enjoyable retirement. He is a Certified Financial Planner™ and Certified Investment Management AnalystSM (CIMA®) and has earned his Chartered Life Underwriter® (CLU®) and Chartered Financial Consultant® (ChFC®) designations.
