Summary/TL;DR
The age that you claim your social security benefits will dramatically impact yours and your spouse’s lifetime income. The most common strategy, and the one that affords the most reliable balance between “maximization” and “protection”, is for the higher earning spouse to delay benefits to age 70 while the lower earning spouse claims at their full retirement age. While there are circumstances where it is advisable for both spouses to delay or claim early, they are relatively rare in comparison. Consulting with a competent and knowledgeable professional about this issue can save you from making a 6-figure retirement mistake.
Introduction
The age at which you claim social security can make a dramatic difference to your lifetime benefits and tax bill. Entire books and courses have been written about “maximizing” your social security and the timing of claiming benefits. And to add to the complexity of the matter, this decision can dramatically affect the amount of your spouse’s benefits or survivor’s benefits in the event of your unexpected death.
Making the “wrong” social security decision can easily amount to a 6-figure mistake. You owe it to yourself and your family to be educated on how the timing of your benefits will impact you.
Claiming Social Security Early/Late
To earn your “full” social security benefit, you must wait to claim until your full retirement age (FRA). For many who are of retirement age today, this will be age 67. Claiming before this age will result in a permanently reduced lifetime benefit (about 0.5% for every month you claim early) and claiming after will produce a permanently increased lifetime benefit (about 0.67% for every month you claim late). Here’s an example of what this would look like if your FRA was 67 with a $4,000 monthly benefit:
If you are claiming benefits on your spouse’s record (known as spousal benefits), then there is no benefit to waiting past your FRA, but you will still be penalized if you claim early. The same is true for survivor’s benefits, which are collected if your spouse passes away and has a benefit that is higher than your own.
Maximization Strategies for Couples
The longer you live, the more you will benefit from waiting to claim social security. If the age at which you and your spouse will pass was known, then the age at which you “should” claim benefits would be very straightforward. In practice, of course, the age of your death is an unknown variable – one that must be given a “best guess” based on statistical probabilities and your own personal health outlook.
On the other hand, you must also plan to protect your spouse in the event of your untimely death. In this case, your spouse will receive the higher of your benefit or their own, meaning that the longer you delay benefits, the more “protection” you are providing them.
Finding the right balance between “maximization”, on the one hand, and “protection”, on the other, is the name of the game when it comes to social security timing. Fortunately, the path forward for most is relatively straightforward and will fall into one of three scenarios.
Scenario 1: Neither Spouse Delays Benefits – What Some People Should Do
If both you and your spouse have some health issues, it’s likely best that you both claim early – before your full retirement age. This doesn’t mean that you should both claim as soon as you’re eligible, at age 62, or even that you should both claim at the same time. You should work with a knowledgeable advisor who can look at and analyze your benefits in conjunction with your spouses benefits and your total retirement plan to help you navigate this decision.
Scenario 2: Only The Higher Earning Spouse Delays Benefits – What Most People Should Do
In cases where even one spouse is reasonably healthy, it’s often best for the higher earning spouse to delay benefits all the way to 70. This ensures that the highest benefit amount is received by at least one person in the couple for the duration of both lives, maximizing “protection” from an unexpected death. In this case, it is also commonly recommended that the lower earning spouse claim their benefit at their full retirement age.
Scenario 3: Both Spouses Delay Benefits – What Few People Should Do
Finally, if both you and your spouse are exceptionally healthy and expect to live into your 90s, then it’s best if you both delay claiming benefits. It’s important to note that even if you’re healthy now, this is a big bet to make and it’s still often advisable to pursue Scenario 2 as a way of “hedging your bets”.
Here is an extremely helpful chart from Michael Kitces that visualizes this decision-making process:
Conclusion
Social security decisions are often permanent, irrevocable, and immense in their impact. Furthermore, the nuances behind social security planning are complex and can change rapidly. Decisions surrounding the timing of claiming social security benefits, then, should not be taken lightly and should never be made absent the counsel of a competent and knowledgeable professional. Beyond the timing issues we’ve discussed in this piece, social security is completely unique in the way that it is taxed, opening another can of worms into this already overwhelming equation. The difference between making the “right” or “wrong” decision with social security can easily make a 6-figure difference on your lifetime retirement income and is well worth the cost of consulting a financial planner to optimize.
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