To Claim or Not to Claim: When Should You Take Social Security?

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Andy Dean Photography/ShutterstockDetermining the best age to take Social Security is especially complicated for married couples.
By Teresa Mears

As retirement approaches, you're going to face a big decision: What age should you claim Social Security benefits?

Do you start drawing Social Security at age 62, as soon as you can, or do you wait until you reach your full retirement age, which is 66 or 67 for people born after 1942? Or should you hold out until you're 70, so you can secure more money for yourself?

There's no one-size-fits-all answer. But since the decision will affect your finances for the rest of your life, it's important to evaluate which strategy is right for you.

"This is a decision that people really want to put some thought into," says Walter Updegrave, author, journalist and publisher of the website Real Deal Retirement. "Especially if you're married -- the decision doesn't just affect you."

The earlier you start drawing Social Security, the smaller your monthly payment will be. If you start at 62, you will receive 25 percent less per month than you would at your full retirement age of 66 (if you were born between 1943 and 1954). For those born later, the reduction grows gradually to 30 percent. The retirement age is 67 for people born in 1960 or later. For those born between 1955 and 1959, a few months are added each year to bridge the gap from 66 to 67.

If you can wait until you're 70 to claim Social Security, your monthly payment will be 32 percent more. Waiting until after 70 doesn't increase your monthly benefit.

Here's one scenario: Someone born between 1943 and 1954 who would receive $1,000 a month at her normal retirement age of 66 would receive $750 a month at 62 and $1,350 a month at 70.

You can calculate your own benefit numbers at if you create an account. But the Social Security website has a number of useful calculators and charts that you can use even without creating an account.

%VIRTUAL-pullquote-Social Security is the equivalent of the best guaranteed return you can get.%Michael Kitces, partner and director of research for Pinnacle Advisory Group, strongly advocates waiting until 70 to start receiving Social Security if you have a choice and expect to live to a ripe old age. At a time of low returns on investment, that 8 percent a year you "earn" for waiting until you turn 70 is a great, no-risk investment, he says. Where else can you earn a about 8 percent on a safe investment?

"Social Security is the equivalent of the best guaranteed return you can get," Kitces says. "It's an amazing guaranteed return that I can't get anywhere."

To fully enjoy those returns, however, most people have to live until at least their mid-80s. "The longer you live, the better your return," Kitces says.

A number of factors have made delaying Social Security a better investment today than it was in the past, including the low rate of return on safe investments, such as money market accounts, bonds and certificates of deposit.

Deciding on a time to claim is particularly important for married couples. Taking Social Security early decreases spousal benefits, and taking it late increases them. Choosing the right strategy is more complicated for couples because it's possible for one spouse to file for benefits at retirement age and then suspend those benefits. That could allow the wife, for example, to receive spousal benefits while the husband is waiting to collect a higher benefit at age 70. If the wife's own benefits would be higher than her spousal benefits, she can switch to her own benefits when she turns 70. That essentially gives both partners their maximum benefit while allowing one spouse to collect benefits in the interim.

According to the Social Security Administration, you'll get the same amount of total benefits whether you collect early, at full retirement age or at 70 -- if you live to the average life expectancy for your age. That's 86.3 for a woman and 83.8 for a man turning 62 this week, according to the SSA calculator. The longer you live past that age, the more you'll benefit from delaying your payments. Conversely, if you're in poor health, you might be better off taking benefits early.

Even if you delay claiming Social Security, it's important to sign up for Medicare at 65. The government advises starting the process three months before your 65th birthday. If you delay signing up, your premiums may be higher.

Asking the question of when to draw Social Security assumes you have a choice. For some people who endured chronic unemployment during the recession, Social Security was the only way to pay bills. Between 2007 and 2009, the number of retirees taking benefits early rose sharply after years of decline. Since 2009, the number has dropped again.

A recent survey by the Nationwide Financial Retirement Institute found that 23 percent of people who drew Social Security early regretted their decision.

If you claim Social Security benefits early and then go back to work, Social Security deducts from your benefits $1 for every $2 you earn above the annual limit, $15,480 in 2014. (The formula is different for the year you reach your full retirement age.) But that means your payments will be recalculated to a higher amount at full retirement age to make up for the benefits you didn't receive. Once you've reached full retirement age, you can earn an unlimited amount and still receive your full benefits.

If you choose to delay Social Security after your full retirement age, you have to either keep working or live off your savings. But, Kitces notes, it can sometimes pay to sell your lower-performing and riskier investments at this point to collect 8 percent a year while waiting.

If you want to run some scenarios, there are a lot of calculators available. If you don't feel comfortable with calculators or have issues they don't cover, consider paying a fee-only financial adviser to help you evaluate your options.

"I do think that it's worthwhile for people to go to one of these calculators and take a look at some of these scenarios because you may be leaving money on the table," Updegrave says.

"The higher earner in the couple probably ought to postpone as much as possible," Updegrave says.

The right strategy depends upon the couple's earnings, ages, life expectancy and retirement goals. Minor children add another layer of complication, but in general if your children are eligible for benefits because you are retired or for survivors benefits when you die, when you choose to take Social Security also affects their benefits.

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