Social Security

When to file for Social Security retirement benefits early

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Delayed gratification isn't always the best bet when it comes to Social Security claiming strategies.

Retirees have been more willing to wait to claim Social Security in recent years. The number of men claiming benefits at age 62 dropped from 56 percent in 1996 to 35.6 percent in 2013, according to a recent analysis from the Center for Retirement Research at Boston College, which used unpublished Social Security Administration data. Among women, the rate dropped from 62.8 percent to 39.5 percent over the same period.

That said, 59 percent of retirees are still claiming before they reach full retirement age (for most workers, that's 66 to 67, depending on your birth year), according to a March survey from Franklin Templeton.

That bucks the conventional wisdom among financial advisors and other experts that waiting is the best way to maximize benefits, especially with increasing longevity. "If you claim early and die later, you're at greater risk of eating cat food," said David Mendels, a certified financial planner and director of planning at Creative Financial Concepts in New York City. More clients are more worried about outliving their assets, he said, than leaving Social Security money on the table if they claim late and die early.

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Waiting is a pretty solid strategy. After all, claiming Social Security before full retirement age locks in your monthly benefit at a reduced level; for those claiming at age 62, it's as much as 30 percent lower. Holding off until full retirement age secures your full benefit, and for every year you wait thereafter, until you turn 70, it gets an 8 percent boost.

But early filers aren't necessarily making a mistake. "In the last four years, everyone in the financial community has jumped on this bandwagon of defer, defer, defer," said Mark LaSpisa, certified financial planner and president of Vermillion Financial Advisors in South Barrington, Illinois. "To my mind, it's not so cut and dried."

When to claim ultimately comes down to the individual worker's situation. "The magic answer is that there really is no best answer," said Everett Lo, a project manager with the Social Security Administration. He said consumers should start planning well before they expect to retire, estimating their benefit and strategizing possible scenarios.

Several factors in particular could make it worth reassessing an early claiming strategy:

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Financial need. Social Security benefits can make a big difference in your bottom line. For the typical retiree, they represent 38 percent of income, according to Social Security Administration data. If you're in dire financial straits with limited sources of income, filing early makes sense, said Mendels. "Obviously there are people who don't have a choice, and if they don't have a choice, they don't have a choice," he said. "Not eating is not recommended."

Keep in mind, though, that if your situation improves—say, you find a new job, or receive an unexpected windfall—you may be allowed a one-time reset. You'll have to make that election within 12 months of first filing and repay all your Social Security benefits received, among other hoops, said Catherine Seeber, certified financial planner and principal for Wescott Financial Advisory Group in Philadelphia. Then you can reapply for Social Security at a later age, she said.

Big retirement plans. "There are three phases of retirement," said LaSpisa. "Go-go years, slow-go years and no-go years." Clients who have planned well for retirement and aren't counting on Social Security benefits to pay the bills may find filing early gives them the extra cash flow for bucket-list travel and hobbies while they still have their health and energy. "They think if they don't do it now, they may never be able to," he said.

Poor health. A 65-year-old man today can expect to live to 84.3, while a 65-year-old woman can expect to live to 86.6, according to the Social Security Administration. If you have a particular health concern or other good reason to think you won't be around that long, that can warrant filing earlier rather than later, said Victoria Fillet, certified financial planner and founder of Blueprint Financial Planning in Hoboken, New Jersey. "You need to know your family history," she said. "Is there longevity in the family? Are you healthy?"

It's not just your health to consider. If you have a higher-earning, older spouse in poor health, it can be smart to claim your own benefit early, said Mendels. (The potential benefit of doing so depends on your ages and eligibility.) Then you can switch to the survivor benefit after he or she passes away, Mendels said.

Other beneficiaries. If you have dependent, underage children when you qualify for retirement benefits, they may also be eligible to receive a benefit based on your record, said Fillet. The value of that extra payout can make up for the reduction in filing early. "It could be a college fund," she said.

Retirement assets. "The real question is, 'If I defer, where is that money coming from?'" said LaSpisa. "The money is not operating in a vacuum." If the alternative is to draw from your portfolio, it's worth crunching the numbers to see how a bigger drawdown in the years you delay will affect your chances of outliving your money. The reduced compounding power in your portfolio might be more damaging than taking a lower Social Security payout, he said.

Marital status. Married couples have a number of strategies they might employ, but it's widowed individuals and those who are divorced (after being married for at least 10 years) who may particularly want to take another look at claiming early, Mendels said. Surviving spouses can opt to claim either their own benefit or a survivor benefit first, and then switch later to the other (presumably more valuable) option. Divorced individuals might claim on the divorced spouse's benefits and wait to claim his or her own at a later date.

This is first part of a week-long series on the state of Social Security on its 80th anniversary.