For many people, delaying Social Security benefits until age 70 is often touted as the best financial strategy. This approach can maximize your monthly benefit, leading to higher lifetime income, especially if you live a long life.
However, while this strategy works well for a majority, there are specific situations where waiting until 70 might not be the smartest move. Here are three scenarios where claiming Social Security earlier could be a better decision.
1. Claiming Spousal Benefits
If you are planning to claim Social Security based on your spouse’s work record, waiting until 70 doesn’t offer any additional benefits. Spousal benefits are designed differently from standard retirement benefits.
The maximum spousal benefit is 50% of your higher-earning spouse’s primary insurance amount (PIA), but you can only receive this full amount if you claim at your Full Retirement Age (FRA), which is typically between 66 and 67, depending on your birth year.
Unlike your own Social Security benefits, spousal benefits do not increase if you delay claiming them past your FRA. This means that waiting until 70 would not result in a higher monthly benefit.
In fact, delaying past FRA could actually reduce the overall amount you receive over your lifetime because you’re simply missing out on years of payments that would otherwise start at FRA.
If you claim spousal benefits before reaching your FRA, your benefits will be reduced. Therefore, for those eligible for spousal benefits, the optimal time to claim is usually at your FRA, not 70.
2. Poor Health Without a Spouse
Another scenario where delaying until 70 doesn’t make sense is if you are in poor health and do not have a spouse who would benefit from survivor benefits. Social Security benefits increase by 8% for every year you delay past FRA, but you must live long enough to recoup the benefits you forgo by not claiming earlier.
The break-even point—where the delayed benefits surpass the total amount you would have received by claiming earlier—typically occurs around your late 70s or early 80s.
If you have significant health issues and don’t expect to live that long, you might never reach that break-even point, resulting in less lifetime income than if you had claimed earlier.
Additionally, if you were to pass away before claiming any benefits, you’d miss out on the Social Security income entirely. While delaying might still make sense if you have a spouse who would benefit from higher survivor benefits, if you are single and in poor health, claiming earlier can provide financial support when you need it most, without the risk of losing out entirely.
3. Risk of Running Out of Savings
Finally, if you’re at risk of depleting your savings before reaching 70, delaying Social Security can be financially dangerous. Many retirees plan to use their savings to cover expenses until they can maximize their Social Security benefits at 70.
However, if your savings are running low and you’re not working, relying solely on those savings for several more years could leave you in a precarious situation.
Social Security benefits are designed to supplement your retirement income, and for some, they form the bedrock of financial stability in retirement. If delaying your benefits means draining your savings too quickly, it might be wiser to claim earlier.
This strategy can help you maintain a safe withdrawal rate from your retirement accounts, ensuring that your savings last longer and you have a reliable income stream.
While delaying Social Security until 70 can maximize your monthly benefits, it’s not the best choice for everyone.
If you’re claiming spousal benefits, are in poor health with no spouse to consider, or are at risk of depleting your savings, claiming earlier may be the smarter financial move.
Social Security decisions should always be based on your personal circumstances and long-term financial goals, rather than a one-size-fits-all approach. Consider your health, financial situation, and family needs when deciding the best age to start receiving benefits.
FAQs
When is the best age to claim spousal benefits?
The best age to claim spousal benefits is typically at your Full Retirement Age (FRA), as benefits do not increase if you delay past that age.
What happens if I delay claiming Social Security and have poor health?
If you’re in poor health and delay claiming, you might not live long enough to break even, resulting in less lifetime income.
Should I claim Social Security early if my savings are running low?
Yes, if your savings are at risk of depletion, claiming Social Security earlier can help maintain your financial stability.
Can I still increase my spouse’s survivor benefits by delaying Social Security?
Yes, delaying your benefits can increase the survivor benefits your spouse would receive if you pass away, which might be important if your spouse is financially dependent on you.
What is the break-even point for delaying Social Security benefits?
The break-even point typically occurs in your late 70s to early 80s, depending on how long you delay and your overall life expectancy.
