3 Important Considerations for Deciding When to Claim Social Security

(Adam Levy)

Before applying for Social Security retirement benefits, consider a few factors. Although you may start receiving Social Security checks at the age of 62, you may be able to get more money from the government program by delaying up to 70.

Here are three big factors to consider when deciding when to apply for Social Security benefits.

1. Your health

Social Security will increase your monthly allowance each year you delay collection, but then you will receive benefits for one year less. Deferred retirement credits are made in such a way that you will end up collecting roughly the same total amount if you live the average life expectancy.

If, however, you have reason to believe that you will die before average age, that would weigh heavily in favor of early reporting. On the other hand, if you have no reason to believe that you will die relatively soon, it can often work to your advantage to delay as long as possible. Delaying social security is like buying insurance against a longer life than expected.

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2. Your spouse

Spouses have the option to claim their own benefit or up to half the partner’s benefit. Importantly, the spouse can only apply for the partner benefit if the partner has already applied. In addition, marital benefits do not accrue deferred retirement credits beyond the age of full retirement.

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If you have earned much less than your spouse over the course of your career, delaying your application beyond the full retirement age is of limited value. Even if your spouse is younger and you won’t be able to apply for your spouse’s allowance until they apply, you won’t be collecting your social security benefit long enough to qualify for the delay. Therefore, all things being equal, asking for full retirement age is often best.

If your spouse is older than you, it might make sense to ask even earlier and start getting reduced marital benefits. If your spouse dies before you do, you can upgrade to a survivors’ pension, which gives you up to 100% of your spouse’s pension at full retirement age.

If your spouse has earned far less than you and will be benefiting from marital benefits, the timing of your request affects when they can apply. Often, delaying social security benefits for higher incomes makes more sense. But if the difference your spouse will collect in terms of benefits is significant enough, you may want to start collecting your benefits sooner so they can change. This would certainly be the case if your spouse has not worked long enough to become eligible for Social Security and is fully reliant on marital benefits.

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Couples should plan their social security strategies together, taking into account age and health.

3. Other assets

If you own a lot of assets on various accounts, you could benefit from the Social Security delay. Not only will you earn deferred retirement credits, but you will have a few years with no income earned to do some placement to minimize taxes. Your mid to late 60s may be a good time to do a Roth conversion or take some capital gains into your brokerage account.

On the other hand, if you depend on Social Security to cover a large chunk of your living expenses, you may not need to do a lot of tax planning. You may take advantage of hiring your Social Security early to make sure you don’t fully withdraw your other assets.

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That said, investors who delay Social Security shouldn’t fear a slightly higher withdrawal rate from their portfolio before retirement. The burden on your wallet will decrease once you start collecting social security checks every month.

If you take into account the expected value of your Social Security benefits in your portfolio, adjusting to your life expectancy, as well as your spouse’s grievance strategy, you should be able to find a great approach on when to apply for benefits.

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