Personal Finance

Here's when it makes sense to claim Social Security early

Key Points
  • Claiming Social Security retirement benefits at the earliest age — 62 — is a big temptation for many aspiring retirees.
  • Deciding to take benefits that early is only advantageous for limited situations, according to financial advisors.
  • You generally want to hold off as long as you can up until age 70 to let your benefits grow as much as possible.
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If you're approaching retirement, you're probably already itching to claim your Social Security benefits.

Age 62 is when qualified individuals first become eligible to file. But claiming benefits early will reduce your monthly paychecks and overall lifetime earnings.

If you wait until full retirement age — usually either 66 or 67, depending on when you were born — you get 100 percent of the benefit available to you based on your personal work record.

And if you delay until age 70, your retirement benefits will be even greater. That is because delaying past full retirement age lets your benefits grow by about 8 percent per year until you reach that age. Waiting until 70 could bring your benefit amount to 132 percent.

Because of this, financial advisors generally recommend that you hold off on claiming as long as you can. Admittedly, that can be a gamble.

"You're always betting you'll live longer and get more money," said Geri Eisenman Pell, CEO of Pell Wealth Partners at Ameriprise Financial in Rye Brook, New York. "The government is asking us to make a calculated risk decision on something we've been mandated to pay into and take a risk on the back end."

It only makes sense to put in for benefits early in limited circumstances, said John Piershale, wealth advisor at Piershale Financial Group in Crystal Lake, Illinois.

"If you're going to take it at 62, if you're single and you're terminally ill and you know you're not going to live very long, then you might go ahead and file early," Piershale said.

Most other situations don't make sense to claim early and take that permanent reduction, according to Piershale. Say you know you won't live a long time, for example. If you're married, claiming early could lessen the amount of benefits your spouse will have access to once you're gone.

"You can still help out your surviving spouse," Piershale said. "Once they get that survivor benefit, that's permanent."

Survivor benefits are determined by the age an individual dies and the amount of Social Security credits they had accrued. By waiting to claim benefits, you will have a greater number of credits, and hence a larger benefit, to pass on when you die.

Couple's guide to Social Security
Couple's guide to Social Security

But how much of that amount survivors can access also depends on when they claim the benefit.

Individuals can file for widow or widower benefits starting at age 60, but that benefit amount will be reduced. If a surviving spouse waits until their full retirement age, they are eligible to receive 100 percent of their spouse's benefit amount.

Those who are eligible for survivor benefits have the ability to choose between claiming those funds and their own retirement benefits, if they are eligible for them. That can include taking the survivor benefit while letting their own benefit grow up to age 70.

"You generally want to take the larger benefit last and you want to take the smaller benefit first," Piershale said.

Those who are eligible for spousal benefits, whereby their mate is still alive, may or may not be able to switch off between both benefits, depending on when they were born. (Individuals are eligible for spousal benefits, which pay up to half the spouse's benefit amount, starting from age 62.)

If you're going to take it at 62, if you're single and you're terminally ill and you know you're not going to live very long, then you might go ahead and file early.
John Piershale
Wealth advisor at Piershale Financial Group

Those who were born before Jan. 2, 1954 and who have reached full retirement age can choose to receive their spousal benefit and delay taking their own retirement benefit. That would allow their retirement benefit to continue to grow.

Those who were born after Jan. 2, 1954 do not have that option. Instead, they must choose between one benefit or the other.

Regardless of your situation, waiting as long as you can to claim Social Security will also help you when it comes to annual cost-of-living adjustments, which will be based on that higher benefit amount.

Because the decision can be complicated, it is important to consult resources including a financial advisor or Social Security calculator to determine the best strategy for you.

"Your purchasing power will be much more by the time you reach your 90s" if you let your benefits grow, Eisenman Pell said.

Optimize your Social Security benefits
Optimize your Social Security benefits