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When it comes to taking Social Security retirement benefits, the common refrain is that it is generally best to wait until age 70 to claim.
That is the date when you will get the highest benefit — your full retirement age amount — plus increases for every year that you held off collecting.
Yet waiting until age 70 does not make sense for everyone.
If you are married and the higher wage earner, it generally makes sense for you to wait as long as possible to claim.
There are two reasons for this, according to Christopher Jones, chief investment officer at Financial Engines.
One is that Social Security payments are based on mortality tables that have not been updated since 1983. And life expectancies have increased since that time.
“People are living longer than they would have been expected to back in 1983, and therefore the credits that you get for delaying Social Security are worth more to you than they would be if they were actuarially fair,” Jones said.
The second reason is that we are still in a low interest rate environment. For every year that you delay claiming Social Security, your benefit increases by 6 percent to 8 percent.
“That’s a guaranteed real rate of return backed by the federal government,” Jones said. “You can’t get real rates of return at 6 [percent] to 8 percent right now — not even close — in the marketplace.”
Holding off until age 70 makes sense for the higher earner of a married couple. That's because their benefits will in turn determine spousal and survivor benefits for their significant other.
For the lower earning spouse, it generally does not pay to wait to claim beyond full retirement age, Jones said, which is generally age 66 or 67, depending on the year in which you were born. That is because they have a choice between their own benefits or spousal or survivor benefits based on their spouse's record, whichever is higher. Often, the benefits they are eligible to receive through their spouse will exceed what they would get if they wait until age 70.
For single people, it is preferable to wait until 70 for the highest monthly checks. But those retirees have more flexibility — and a second best option.
Single Social Security claimants who want to hold off until age 70, but find they can’t quite wait any longer should select age 69 for the best trade off, Jones said.
That sacrifice may be as little as a few thousand extra dollars in additional lifetime benefits in exchange for starting a year earlier, according to Jones.
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“If you’re single, we’ll tell you you should wait until 70,” Jones said. “It is generally preferable to do so. But it’s not quite as critical as it is going from 66 to 67, or 67 to 68.”
If you’re approaching your late 60s, the decision as to when to start your benefits comes down to one key question: how long you expect to live, said Jason Scott, managing director of JS Consulting, who has researched this and other topics on Social Security.
“If you’re employed and thinking about these things, you’re probably healthier than average,” Scott said. “If you’re not and you’re delaying it and trying to maximize the benefit, maybe you’re more average. There are pretty strong clues as to whether you’re above average in terms of life expectancy.”
In addition to employment, look to your parents health, your income and your health history. Individuals who are in the top quartile for income tend to live longer, Scott said. Bad health habits, such as smoking, have the opposite effect.
“There might be some hints as to these kinds of things that people may not realize are strong signals of good health relative to average,” Scott said.