This is the kind of question we frequently see at REDW wealth, but in some ways, it’s like asking whether a young couple should have a baby right away or wait five years. There is no one correct answer in considering all the variables that go into making the Social Security decision. There could be as many as five or six different answers ranging from claiming at age 62, claiming at full retirement age, delaying payments until age 70.
By itself, the question doesn’t take into consideration whether the claimant is married or single, is in good health or bad, will have other income in retirement, or is willing or able to continue working. In theory, Social Security Administration has published information that suggests that all claiming ages and amounts are actuarially equivalent. This means if you claim less money early, it would equal claiming more later.
The most significant issue addressed here is whether or not the person claiming has a long life expectancy or a short one. Obviously, someone in poor health or short life expectancy probably be better off to claim benefits early. However, Social Security’s actuarial assumptions are actually dependent upon any life expectancy issues. For example, the SSA has published figures showing that individuals in the top half of wage earners live approximately five years longer than those in the bottom half. Additionally, in a dual claiming household, ultimately, there may be a survivor benefit payable to the person who lives the longest. In situations like that, it may make sense for the lower-wage earner to claim benefits early.
The most important thing to understand about claiming benefits early is that there are serious reductions to your income for the “benefit” of getting a check as soon as possible.
One of the most important things to understand about claiming Social Security benefits is the relationship between claiming early and claiming late. Full retirement age changes depending upon your year of birth. Full retirement age, or FRA, is changing or moving from age 66 to age 67. If you claim benefits prior to full retirement age, you will receive a reduction in benefits. At full retirement age, you receive full benefits. If you delay claiming past full retirement age, you are able to claim delayed retirement credits and increase your ultimate Social Security check. Those increased benefits can also go to a survivor.
|Year of Birth
|66 & 2 mo.
|66 & 4 mo.
|66 & 6 mo.
|66 & 8 mo.
|66 & 10 mo.
For single individuals, the claiming question has fewer variables since no survivors will be able to inherit the monthly retirement benefit. One of the starting points for this discussion is to go to the Social Security administration’s website, SSA.gov, and sign up for a Social Security account. There you will be able to download an estimate of your benefits and retirement along with finding out how much you would be able to claim at various ages.
In general, the difference between claiming at 62 and claiming at age 70 is approximately 75%. In other words, if your monthly Social Security benefit at age 62 were $1,000 a month, then your monthly benefit at age 70 would be $1,750 a month.