Social Security: It Could Pay to Wait

The size of your benefit will vary depending on the choices you make, including when you file for benefits and whether you earn income while receiving benefits. For instance, you qualify for 100% of your benefit if you file at your FRA. But filing early—at age 62—can lead to an almost 30% reduction in benefits. By comparison, your benefit increases by 8% for every year past your FRA that you delay receiving it, until you reach age 70. For example, someone who reaches FRA of 66 in 2020 but waits until age 70 to file would receive a 32% increase in their benefit. There is no additional benefit for filing after age 70.

Since most people rely on Social Security for at least part of their income in retirement, it’s important to make choices that maximize the impact these benefits have on your retirement income plan. (See “Why Claim Early or Later?”) To that end, consider the following questions:

Will you continue to work? Receiving early payments while continuing to work can reduce your benefits. If you do plan on working, consider delaying your benefits at least until your FRA.

• What is your life expectancy? While this question can be difficult to address, you can use some available information to think about it. Considering the longevity of relatives or your current health is a good place to start. Additionally, you can use an estimate from sources like the SSA Life Expectancy Calculator. The longer a person expects to live, the more it makes sense to delay Social Security benefits. If you have known medical issues or otherwise believe you won’t achieve the average life expectancy for someone your age, however, you may want to consider receiving your benefits early. But women and people with higher incomes, who tend to live longer than average,² are among those who should consider delaying.
• What are your financial priorities? If you expect to have higher expenses early in retirement and aren’t worried about outliving your assets, then receiving your benefits early can help meet those priorities. However, if you are concerned about longevity risk—namely, the risk of outliving your assets and income—then delaying would likely be a better option.
• What will your spouse do? Couples must also plan when each spouse should file for benefits. The higher-earning spouse should consider delaying to receive the highest benefit possible, particularly to maximize the future survivor benefit. “The lower earner may still want to take their benefit early,” says Young. “This way, they get some income while they’re in their 60s, while the higher earner waits until age 70 to begin collecting benefits.” If both spouses claim early, the surviving spouse may be startled by the size of the benefit reduction when their partner passes away.
• Will you have other sources of income? If you expect to receive a pension or have other sources of guaranteed income, you might choose to file for early benefits if doing so allows you to delay drawing down your savings. This strategy is most appropriate if the pension and early benefits allow you to be more aggressive with your portfolio’s asset allocation, thus positioning your investments for greater potential growth. “Social Security essentially includes an implied return of around 3% in its calculation of the benefits of delaying,” explains Young. “So, you could take Social Security early and then not draw down your assets as quickly if you think you’re going to make more than that 3%. However, remember that the 3% implied return from Social Security is essentially risk-free.”

It may be tempting to begin receiving your Social Security benefits as soon as possible—particularly after years of paying into the program. But without carefully weighing your choices, you risk short-changing yourself by taking reduced benefits. Delaying until your FRA—or possibly even until age 70—can help you maximize your benefits. That strategy can help bolster your income plan for a retirement that could last three decades or more.