Eight Strategies for Deciding When to File For Social Security

Waiting until age 70 to file for Social Security retirement benefits can be an effective way to reduce the risk that you’ll run out of money in your later years. But in some instances, filing for benefits at your full retirement age (FRA) or even earlier could provide the additional financial security you and your family need now. You can file as early as 62, but your payments will be reduced because your aren't typically entitled to 100% of your benefit until age 67.

In some cases, you may not be able to wait until full retirement age — let alone until age 70 — to file for benefits. Although 68% of workers expect to retire at age 65 or older, in reality, only 31% of retirees managed to work that long, according to research by J.P. Morgan Asset Management. 

Not sure when to file? Take a look at these eight strategies for determining when to file for Social Security.

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1. It's all about the timing

The best time to claim your Social Security benefits depends on you, your current situation, your future needs, if your married, single, have children and more. 

If you’re approaching retirement, or you’ve retired but haven’t yet filed for Social Security, you’ve no doubt heard about the advantages of waiting until age 70 to claim your benefits. Although you can file for benefits as early as age 62, your monthly payout can be as much as 30% lower than the amount you’ll receive if you wait until your full retirement age (FRA). (For people born in 1960 or later, FRA is 67). Your annual cost-of-living adjustment will be lower, too, because the COLA is based on the amount of your benefit. 

If you delay starting benefits until after you reach full retirement age, you’ll receive an 8% delayed-retirement credit for each year you postpone claiming benefits from that age until age 70. Workers who reach full retirement age at 67, for example, would receive a 24% increase in benefits by waiting until age 70 to file. (Social Security provides a "quick calculator" you can use to estimate your benefits based on the year you plan to retire.) 

Yet despite those advantages, less than 10% of retirees wait until age 70 to claim benefits, and about 30% claim them at 62, according to the Congressional Research Service.  

2. File now or wait until later?

In some cases, individuals don’t have the luxury of waiting until full retirement age — let alone until age 70 — to file for benefits. Although 68% of workers expect to retire at age 65 or older, in reality, only 31% of retirees managed to work that long, according to research by J.P. Morgan Asset Management. 

Among those who retired earlier than planned, over one-third cited health problems or disabilities, 31% cited corporate downsizing, and 16% said they retired early to take care of a spouse or other family member. When that happens, claiming Social Security — even with the haircut — can provide much-needed financial stability, says Ashton Lawrence, a certified financial planner in Greenville, S.C. “It’s crucial to balance short-term financial needs with the long-term benefits of delayed claiming.”

Other retirees file for Social Security as early as 62 because they don’t expect to live long enough to benefit by waiting. Niv Persaud, a CFP with Transition Planning & Guidance in Atlanta, says one of her clients is in remission after a cancer diagnosis and doesn’t have a family history of longevity. Although she understood that waiting until age 70 would increase the size of her benefits, “given her ongoing health issues and family history, she preferred claiming her benefit early,” Persaud says. 

3. The break-even point in claiming Social Security 

The break-even point is the age at which the value of claiming larger benefits for a shorter period — starting at age 70, for example — outweighs the benefits of claiming a smaller payout for a longer period — say, by starting at age 62. 

Estimates of break-even points vary, but an analysis by J.P. Morgan Asset Management recommends claiming benefits as early as 62 if you don’t expect to live past 77. If you expect to live beyond 77, postpone benefits until at least your full retirement age, and if you expect to live beyond age 81, consider waiting until age 70 to file for benefits. 

Most Americans will live past age 77, and many will live into their 80s or beyond. According to the Social Security Administration, a 62-year-old man has a 71% chance of living to at least age 77 and a 58% chance of living to age 81; a 62-year-old woman has an 80% chance of living to at least 77 and a 69% chance of living to 81. 

"Even if your parents died in their fifties or sixties, advances in diagnosis and treatment of common diseases, along with differences in lifestyle, could enable you to live much longer than they did," Persaud says.

4. Strategies for couples

Even if you’ve decided that delaying benefits until age 70 is in your best interest, covering expenses in the interim can be a challenge. But if you’re married, there’s a strategy you can use to bridge the gap. Consider having the lower-earning spouse file for benefits at full retirement age, or even as early as 62 if necessary. Use the lower-earning spouse’s benefits, along with income from other sources, to pay expenses while the higher earner’s benefits — which will get the biggest boost from delayed-retirement credits — continue to grow until the higher earner turns 70.

Marguerita Cheng, a CFP with Blue Ocean Global Wealth in Potomac, Md., worked with a married couple who wanted to provide financial assistance to an aging parent and a disabled sibling. They elected to have the wife, who was the lower earner, file for benefits before she reaches full retirement age, while the husband will wait to file for benefits until at least his full retirement age or possibly age 70, she says. "Having access to funds they can use to help family members provides them with peace of mind," Cheng says.

This strategy could also enable married couples to get the most out of their survivor benefits. A surviving spouse who has reached full retirement age is eligible for up to 100% of the deceased spouse’s benefit or, if the deceased spouse had not yet filed for benefits, 100% of the amount the deceased spouse would have received had he or she filed. For that reason, it may make sense for the higher earner to delay benefits until age 70, even if he or she doesn’t expect to live past 81, in order to preserve the maximum benefit for the surviving spouse.

While having the higher earner wait until age 70 to apply for Social Security will increase survivor benefits, it won’t affect spousal benefits, which allow the lower-earning spouse to receive benefits based on the higher earner’s work record. The most a spouse can receive in spousal benefits is 50% of the higher earner’s primary insurance amount, which is the amount that spouse is entitled to at full retirement age.

5. Strategies for surviving spouses

If you’re a widow or widower, you can file for survivor benefits as early as age 60, but you must have been married to the deceased for at least nine months at the time of death. If you choose to take survivor benefits this early, it will be reduced by about 29%.  

A surviving spouse can collect 100% of your late spouse’s benefit if you have reached full retirement age.  Keep in mind that the full retirement age for survivor benefits is different than for retirement and spousal benefits — it is 66 and 2 months for people born in 1957, 66 and 4 months for those born in 1958, and gradually increases to 67 over the next several years.

"If your own benefit will be less than the survivor’s benefit, a better strategy is to file for your own benefits at age 62 and switch to survivor benefits when you reach full retirement age, which is when those benefits reach their maximum," says Michelle Gessner, a CFP with Gessner Wealth Strategies in Houston. (Survivor benefits aren’t eligible for delayed retirement credits, so there’s no upside to waiting until age 70.)

“Taking your own benefit at 62 doesn’t preclude the survivor’s benefit from growing in the background, which is typically not the case with other benefits offered through Social Security,” Gessner says. "Conversely, if your own benefit will be larger, you could claim survivor benefits as early as 60 and allow your own benefits — which are eligible for delayed credits — to grow until you reach age 70, at which point you could switch to your own benefits."

If you’re divorced, you’re also eligible for survivor benefits as early as age 60 — or as early as 50 if you have a disability — if the marriage lasted at least 10 years and you didn’t remarry before age 60. (If you remarry after you turn 60, it won’t affect survivor benefits.) As is the case with surviving widows and widowers who aren’t divorced, you can file for your own benefits early and allow your survivor benefits to grow, or vice versa.

6. Strategies for parents of minor children

If you’re eligible for Social Security and have minor children, they may also be eligible for benefits, but only if you’re receiving benefits. Your child (or children) must be younger than 18 (or 19 if still in high school). Unless a child is disabled, benefits will stop when your child turns 18 — or, if your child is in high school, benefits will last until they graduate or two months after they turn 19, whichever comes first. 

Dependent grandchildren are also eligible for benefits. Minor children can receive up to half of the amount the parent will receive at full retirement age. In the case of multiple children, Social Security caps the amount a family can receive at 150% to 188% of the parent’s FRA benefit.

Benefits paid to a minor child won’t reduce the amount you’re eligible to receive when you file. However, if you start benefits early — at age 62, for example — so that your children will receive payments, your benefits will still be permanently reduced. "For that reason," Lawrence says, "you should weigh your family’s immediate financial needs against the increase in your benefits you’d receive by filing later."

7. Strategies for singles

While preserving survivor benefits is an important consideration for married retirees, it’s not an issue for singles. If you don’t need the income, it still makes sense to wait until you reach full retirement age to file, but waiting until age 70 may be less compelling. 

One of Persaud’s single clients decided to claim at age 67 after learning that she would receive only about $100 a month in additional benefits if she wanted until age 70. Filing for benefits helped alleviate stress about her finances, “and $100 wasn’t going to make or break her,” Persaud says.

If you have chronic health problems that could affect longevity, claiming benefits at full retirement age, or even earlier, will provide you with income to enjoy the time you have left.

If you’re divorced, you can still receive benefits based on your ex-spouse’s earnings instead of your own, as long as you were married at least 10 years, you’re 62 or older, and you’re currently unmarried. As with a regular spousal benefit, you can get up to 50% of an ex-spouse’s benefit, but that benefit will be reduced if you claim before your full retirement age.

Taking a benefit on your ex-spouse’s record has no effect on his or her benefit or the benefit of your ex’s current spouse. If your ex qualifies for benefits but has yet to apply, you can still start collecting Social Security based on the ex’s record, though you must have been divorced for at least two years.

8. Social Security and your investments

Although Social Security represents a significant and reliable slice of your retirement income, you may have other financial resources, such as IRAs and 401(k) plans, taxable brokerage accounts, and, if you’re lucky, a defined-benefit pension plan. With that in mind, reviewing Social Security as a component of your overall retirement portfolio can help you determine the optimal time to file for benefits.

For example, if you’re forced to retire in a year that your portfolio has dropped 15% to 20% — and you don’t have other sources of income — filing for Social Security could enable you to avoid taking withdrawals that would lock in those losses, says Andrew Herzog, a CFP with the Watchman Group in Plano, Texas. "Though filing early will reduce your benefits, it could also provide enough time for your portfolio to recover before you need to take withdrawals."

Another factor to consider is the projected returns for your portfolio and the types of investments you own. For example, filing for Social Security before age 70 could enable you to postpone converting an annuity into a guaranteed income stream, which would result in a higher rate of return, Lawrence says.

Some retirees believe returns on their portfolios could outperform the return they’ll receive by delaying Social Security — especially if they reinvest their benefits. However, Social Security’s annual COLA, combined with the guaranteed 8% annual return for delayed-retirement benefits, is a high hurdle to overcome. 

Outperforming that return would require an aggressive investment strategy and a high tolerance for risk, according to a recent paper by Wade Pfau and Steve Parrish in the Journal of Financial Planning. Even then, the authors conclude that based on historical data, it’s uncommon for investment returns to beat the implied benefit of delaying Social Security for long-lived retirees.

Finally, if you’re determined to leave a legacy, filing for benefits before age 70, or even full retirement age, could reduce the amount you’ll need to withdraw from your savings, thus increasing the amount you’ll be able to leave to your heirs. Filing for Social Security “isn’t always about maximizing benefits,” Cheng says. “The decision to claim Social Security is as much a personal decision as a financial one.”

Note: This item first appeared in Kiplinger's Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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