Waiting to claim Social Security benefits results in higher monthly payments, but waiting isn't for everyone. Our retirement strategist answers your questions.
From the Merrill Edge Minute e-newsletter.
- You can start drawing Social Security benefits at any age, from 62 up to 70. The longer you wait to claim Social Security, the higher your monthly benefits will be.
- The best time to claim Social Security benefits depends on your marital status, health, family history and financial needs.
- Waiting to claim could raise the expected lifetime benefits by some $60,000 for singles and far more for a couple — though waiting may not be the best choice for everyone.
In this Q&A, David Laster answers questions about how to decide when to claim Social Security and the potential impact of this decision.
Head of retirement strategies
Merrill Lynch Wealth Management
As you approach retirement, one of the biggest — and least understood — decisions you'll face is choosing when to begin receiving Social Security benefits. The longer you wait to claim them, the higher your monthly benefits will be.
If you claim Social Security at your full retirement age
(determined by the government), you will receive a full benefit based on your earnings history. You can also claim as early as age 62, although that reduces your monthly benefit by 25%. Or you could wait until age 70, when your monthly benefit would increase by 32%.1
Waiting to claim Social Security could potentially boost the expected lifetime benefits for those with high income (90th percentile) by as much as $60,000 for a single person and far more for a couple.2 To decide when to claim benefits, you'll want to consider a variety of factors.
Q. People are living longer. Does that affect when to claim Social Security benefits?
A: Yes, the greater your life expectancy, the more sense it makes to wait to claim your benefit, as explained below.
Source: Merrill Lynch Investment Management & Guidance calculations based on Social Security Administration calculator at socialsecurity.gov/OACT/quickcalc/ — accessed April 2016. Full Retirement Age is the age at which a person may first become entitled to full or unreduced retirement benefits.
Q. Can you explain why postponing benefits might make good financial sense?
A: Imagine that a 62-year-old man is entitled to an annual Social Security benefit of $12,000 if he claims now. If he waits until his full retirement age of 66, he'll receive an annual benefit of $16,000. That's 33% more — an amount that's adjusted each year for inflation for the rest of his life. And postponing benefits may also result in an increased benefit for his survivors.
Let's assume this 62-year-old man lives to the average age of 87:
- If he started claiming benefits at age 62, he would receive $312,000 in lifetime benefits (26 years x $12,000).3
- If he delayed claiming until age 66, he would receive $352,000 in lifetime benefits (22 years x $16,000).4
Q. Should women think of Social Security benefits differently?
Yes, they should because women typically live longer than men and have saved less in 401(k)s than their male counterparts. Consequently, women should consider saving more to make their money last longer
. If she can afford to delay claiming benefits, she'll receive a higher annual payout, which can help with expenses that may increase with age, such as medical costs.
Waiting until age 70 could be especially beneficial if a woman is single and lives into her late 80s or even 90s. In fact, claiming at age 70 would increase her expected lifetime benefits by 18%, relative to someone who claims at 62, the earliest possible age. For a high-income earner, this can mean about $70,000 of additional lifetime income.5 On the other hand, if the woman is in poor health or has relatives who have lived only to their 60s and 70s, then claiming Social Security benefits at 62 may be a good choice.
Q. Does delaying benefits make sense for men as well?
A: Yes, though the potential gain from waiting is a bit less. For a single man with a typical life expectancy, an advantageous age to claim Social Security benefits might be 69. Starting payments then would increase expected lifetime benefits by 14%, compared with what he would receive if he started taking benefits at age 62.6 For a high-income earner, this could mean another $55,000 of lifetime benefits.
Q: Some of the rules regarding the way couples can claim Social Security have recently changed. What strategies remain for married couples?
A: It's important to remember that the spousal benefit isn't going anywhere. Even with the recent changes, a married couple will receive at least as much as — and often substantially more than — they would as two single individuals. That's thanks to the spousal benefit, which allows one spouse to claim benefits based on the higher earning spouse's record.
And several strategies still exist that can help couples maximize benefits for their particular situation. For instance, depending on the situation, it may make sense for the higher earner — let's say it's the husband — to consider waiting at least until full retirement age to claim benefits. Doing so will boost his benefits throughout his lifetime and, should he die first, throughout the lifetime of his spouse through the survivor benefit.
The lower earning spouse can always consider claiming Social Security at age 62, and then request a spousal adjustment once the other spouse files for Social Security. This only makes sense if the spousal benefit would be higher than their retirement benefit at full retirement age. However, if both spouses have similar earnings, it may make sense for the higher earner to consider waiting to claim benefits until age 70, while the lower earner could claim benefits as soon as he or she reaches full retirement age (currently 66). You can read more about spousal benefits
on the Social Security website.
Q: Is there anything we still need to know about the recent changes to the way married couples can claim their benefits?
A: As part of the Bipartisan Budget Act of 2015, two claiming strategies that many married retirees found useful were phased out. One was the "file and suspend" strategy. The other is called a "restricted application" — or, more commonly, the "claim twice" strategy.
Waiting to claim Social Security could increase expected lifetime benefits by some $60,000 for a single person and far more for a couple.
The "claim twice" strategy continues to be available to anyone who was 62 years old or older on January 1, 2016. This strategy allows a married person (or in some cases a person who is divorced
) of full retirement age — let's say it's the husband — to file for a spousal benefit while deferring his own benefit and letting it grow until he's ready to claim on his own record.
As of April 30, 2016, file and suspend is no longer available, although anyone already using this strategy prior to that date isn't affected.
When is waiting not the right answer?
A: It may be wise to claim as early as age 62 if your parents and grandparents didn't live past 75, if you're in poor health or if you know you'll need the money sooner. For example, a family caregiving situation could arise that requires your immediate attention and financial support. Your decision should be based on your situation and what's right for you.
Social Security is a financial safety net for you to start using when the time — between ages 62 and 70 — is right. For people in good health, waiting to claim could increase expected lifetime benefits by some $60,000 for a single person and far more for a couple. More important, waiting to claim can meaningfully bolster the amount of income you or your spouse will receive should one of you live to a ripe old age.
Not everyone can afford to wait, and single people in poor health or with a short life expectancy might do best to claim benefits at 62, the earliest possible age.
When and how to begin claiming your Social Security benefits are important — and complex — decisions. Understanding the latest rules, and figuring out how they apply to your personal situation and that of your spouse, is critical. It may be a good idea to consult with an attorney who specializes in elder law. The answer is different for everyone, so develop a Social Security and retirement date strategy
and let your personal circumstances be your guide.