Investor Column | When should you claim your Social Security benefits?

When is the best time to claim Social Security benefits? According to a report from the Bipartisan Policy Center, more than a third of Americans still claim at age 62. Two-thirds claim benefits before full retirement age.

Many do not consider that by beginning benefits early they are taking an active choice to receive less income than they would receive by claiming later. Many do not consider the implications claiming early may have on their spouse’s benefits.

Only about 4% of retirees make the optimal Social Security claiming decision.

Certainly, many people without adequate savings have no choice but to take their benefits early. Everyone else has a choice.

Less than optimal claiming decisions by retirees, according to United Income Inc. a wealth management software firm owned by Capital One, found that claiming decisions cost households on average $68,000 in lost wealth.

Women and healthier Americans (often those with higher incomes) tend to live longer than the average American and can expect to receive benefits over more years. The loses of taking benefits early are particularly acute for this group.

The solvency question of Social Security’s viability can also make it tempting to begin benefits early. Boston University’s Larry Kotlikoff noted that if Social Security income is eventually cut the income for those who claimed early will be cut by the same percentage amount as those who claim later. Professor Kotlikoff, by the way, believes it is unlikely that benefits will be reduced.

While benefits are available beginning at age 62 those claiming at a later age permanently raise their monthly benefit. The maximum benefit is a available to those who claim at age 70. There is a 6% reduction in monthly benefits for each year one receives benefits before full retirement age. Full retirement age is not 65. Depending on the year of your birth many of us have full retirement age at 66 and several months or later.

If someone decides to take their benefit beginning at age 62 rather than at their full retirement age of 67, they will receive approximately 30% less per month than if they had waited until age 67. That’s significant.

Conversely, if one is able to delay claiming past the full retirement age they will gain about 8% more in monthly benefits each year up until age 70. Delaying Social Security benefits beyond full retirement age until age 70 would result in a 24% increase in the monthly benefit. That’s significant as well.

Social Security is more valuable for women. Why? As mentioned earlier they live longer than men. On average, they live a little more than two years longer than men. Women benefit more from delaying benefits. They suffer greater lose when claiming early.

Many of the more advance claiming strategies were eliminated in 2016. However, differences in spousal income can still present an important opportunity to increase expected lifetime income for lower earning spouses.

If both spouses have similar incomes and assuming they are healthy they should try to delay taking benefits until age 70. The surviving spouse has the ability to claim the other spouse’s full benefit after death. Assuming it is higher it makes sense to do so.

A lower income spouse, on the other hand, has the option to receive half of the spouse’s higher earnings when he or she claim benefits at full retirement. That spouse can later claim their own benefit assuming it is now larger than the spousal benefit received.

In the low or even negative interest rate environment we are in Social Security claiming strategies are even more important. These claiming strategies have even more impact for a surviving spouse.

There is about a 50/50 chance that a healthy spouse will still be alive at the age of 95. Benefits increases tied to delayed claiming are spread out over a greater number of years.

When to claim Social Security benefits is an important one. Claim wisely.

Information sourced: https://www.investmentadvisordigital.com/investmentadvisor/march_/Print_.ac... 2/23/2021

Michael T. Doll, A.A.M.S. is an investment planner with Harbor Financial Services, can be reached at 941-896-2473 or at mtdoll@harborfs.com. This is the view and/or opinion of Michael T. Doll and not necessarily the views and/or opinion of Harbor Financial Services, LLC and SEC Registered Investment Advisor, whose main office is located in the state of Alabama