Social Security Retirement Benefits: When Should You Start?

The timing of your Social Security retirement benefits is subject to variables such as your earning history, age, life expectancy, financial needs, work status, and marital status.

If you are at or near retirement age, you have probably been entertaining thoughts of your Social Security retirement benefits, how much they will be, and when you should start receiving them.

It would be nice - for you as the recipient and for us as the dispensers of professional advice - if there were a single, sure-fire answer that applies to everyone. Unfortunately for simplicity-seekers, the optimal timing for claiming your first Social Security check is subject to a number of situation-specific variables that include your earning history, age, life expectancy, financial needs, work status, and marital status.

Here is a brief look at those important variables and some general comments regarding each.

Earning History

Every year you should receive from the Social Security Administration a statement of your benefits and how much you would receive at "full retirement age" (FRA). That age depends on when you were born; for most people at or near retirement age, FRA is in the neighborhood of 66 or 67. (Find your exact FRA at the Social Security Administration website.) determined by your earnings record that is included in the statement.

Age

The timing of Social Security benefits falls within the 62-70 age range. You can start receiving retirement benefits at age 62 - a tempting strategy for many people, but probably a mistake if you want to maximize your total benefits over the course of your remaining life.

Here's why: If you can afford to wait until you reach age 70, you maximize your benefit. Until you reach 70, every year you wait results in an increase of more than 8% in the amount of your monthly check. Put another way, the monthly benefit you receive if you start at age 62 is about 35% less than the check you would receive at FRA and about 48% less than the check you would receive at age 70.

A Counter-Argument. If you start receiving benefits at 62, your checks will be smaller, but you will receive more of them. That can be a better deal for some retirees - especially those who don't expect to live into their 80s or 90s. If you have serious health issues (or a family history of health problems), claiming early may give you more satisfying options than waiting.

That brings us to ...

Life Expectancy

This is the great unknown, and it's a huge factor in deciding when to start receiving your retirement benefits. If you don't expect to live very long, taking benefits at 62 might be the right move. But it's common for retirement-age people to live into their mid-80s to mid-90s, and for them the income difference between retiring at 66-67 and age 70 can be significant.

Consider these examples: A man born in 1953 starts taking benefits at his FRA of 66, and his monthly check for the first year is $2,523. If he lives until age 85, he will receive more than $582,000 in benefits. If he makes it to 95, the total will be more than $885,000.

That's a lot of money, but it gets better. If the same man delays receiving benefits by just four years, to age 70, his first check will be about $3,300, and his total benefits at ages 85 and 95 would be about $610,000 and $1 million, respectively. At 95, his four-year wait will have generated an additional $115,000 - which could help pay for likely needs for healthcare and life care.

(By the way, there is no financial advantage in delaying the start of your Social Security benefits beyond age 70.)

How long will you live? No one knows - but we do know that you shouldn't trust the basic life expectancy calculator at the Social Security website, which thinks that our friend in the above example is going to make it to age 84.3. A more reliable projection can be found with, for example, this life insurance company's calculator, which considers such things as tobacco and alcohol use, height and weight, blood pressure and cholesterol levels, exercise routines and driver safety. That more in-depth calculator gives our friend 10 more years, to age 95.

Looking at life expectancy another way, a credible source reports that, for a married couple retiring at 65, there is a 50% chance that at least one of the spouses will live to 92, and a 25% chance that one will make it to 97.

Marital Status

For married couples, they should consider some extra factors involving "spousal" benefits and "surviving spouse" benefits.

Spousal Benefits. A person must work at least 10 years in order to qualify for Social Security benefits based on their own work record. However, a married person can claim spousal benefits without ever working a day in their life, as long as their spouse is eligible for Social Security. (Note: Timing is very important here, and the various scenarios can't be adequately discussed in this brief article.) Generally, it does not pay to wait past your FRA to start taking spousal benefits, as spousal benefits don't get the same increase from FRA to age 70 as a primary benefit does.

Surviving Spouse. This can be a very important planning factor for married couples. When the first of the two spouses dies, the survivor can collect either their own Social Security benefit or their late spouse's - whichever is larger. This provides an incentive for the higher-earning spouse to delay collecting benefits as long as possible, ideally until age 70, when their benefits - and the benefits received by the surviving, lower-earning spouse - will be maximized.

Investing Your Early Benefits?

Some recipients employ what we view as a rather dubious strategy: Taking benefits starting at age 62 and investing the proceeds. We don't recommend that approach, as the 8% per year increase that Social Security provides is pretty close to a sure thing - as opposed to the peaks and valleys of the stock market. As we learned in 2008, even investing in real estate is not without its risks.

Taxation and Social Security

This is a topic for another article (one that we will probably never write). Rather than delve into the many tax ramifications of Social Security benefits and other sources of income, let us leave it at this: Before you claim benefits, meet with your tax advisor and go through the many scenarios involving retirement benefits, employment income, investment income and other tax issues.

After you start receiving benefits, your tax planning options are narrowed greatly, and it's smart to have a plan in place before Uncle Sam starts sending you checks.