When is the right time to file for Social Security benefits? Unfortunately, this straightforward question does not have a simple answer and because of that, many retirees lose out on valuable benefits each and every year.
The Basics
Broadly speaking, you have three different options for when to file for Social Security. Each has an impact on the monthly benefits you receive.
- Option 1: You can file before you reach Full Retirement Age (FRA) for a reduced benefit. The earliest you can receive normal retirement benefits is 62.
- Option 2: You can file at FRA and receive the full benefit (also known as your primary insurance amount). Your FRA is between 66 and 67 depending on the year you were born.
- Option 3: You delay benefits until after FRA. The latest you can file is age 70 and you receive an increase in benefits each month you delay.
Your FRA depends on your birth year. For those born before 1954, your full retirement age is 66. From 1955 to 1959, the FRA increases by two months until it reaches 67 for those born in 1960 and later.
What Variables Matter
There are both internal and external factors that should be evaluated to make the best decision on when to file for Social Security, such as:
- Health
- Life expectancy
- Income need (i.e., do you need the money now?)
- Balance of retirement savings and investment accounts
- The current economic landscape
- Interest rate environment
- Stock and bond markets
- Taxes
The decision of when to file should always incorporate all of your financial resources to ensure whatever decision you make is the right one for you.
Lifetime Benefits
At a high level, your choice is this: a smaller payment for a longer period or a larger payment for a shorter period. There is a time though when filing at different ages with varying benefits will break even. Below is a simple example (please note, this does not account for cost-of-living adjustments or inflation).
Lifetime Social Security Benefit (62-year-old Jane Doe)
| Begin Age 62 | Begin Age 66 | Begin Age 70 | |
| $750/month | $1,000/month | $1,320/month | |
| Live to Age 70 | $72,000 | $48,000 | $0 |
| Live to Age 75 | $117,000 | $108,000 | $79,200 |
| Live to Age 78 | $144,000 | $144,000 | $126,720 |
| Live to Age 80 | $162,000 | $168,000 | $158,400 |
| Live to Age 83 | $189,000 | $204,000 | $205,920 |
| Live to Age 85 | $207,000 | $228,000 | $237,600 |
| Live to Age 90 | $252,000 | $288,000 | $316,800 |
| Live to Age 95 | $297,000 | $348,000 | $396,100 |
As you can see, if Jane lives beyond age 78 she will collect more benefits by waiting until FRA. If she lives to age 83, which is the national average, she will collect the highest benefit by waiting until age 70. Assuming she has other resources to live off during her 60s, it may be better to file at FRA or later.
Does Delaying Make Sense?
A 2012 study by economists John Shoven of Stanford University and Sita Slavov of Occidental College identified the conditions when it is most advantageous to delay Social Security benefits. They concluded that gains from delaying are greatest:
- When interest rates are low
- For married couples relative to singles
- For single women relative to single men
- For dual-income households relative to single-income households
- For a married couple, deferring the primary bread winner’s benefit compared to the lower income earner
Every year you delay collecting benefits between the ages of 62 and 70, your benefit will increase between 6-8%. Compare that to collecting benefits and reinvesting into U.S. Treasuries with the 10-year sitting around 3.5% and delaying benefits would appear more compelling. That is not to say delaying benefits is always the right choice, however.
Income from Other Sources
If you do not have sufficient retirement savings or investments and will be dependent on Social Security, you may have no choice but to file as soon as you can. But if you have retirement savings, investments, or income from other sources, you might be able to afford waiting until FRA or even later.
Keep in mind, if you are still working and are not full retirement age the government will withhold $1 in benefits for every $2 you earn over a certain income threshold.
Benefits and Strategies for Spouses
Deciding how to file for Social Security when you are married can be more complex. As an individual, you try to maximize benefits over your lifetime. As a couple, however, the goal is to maximize your combined benefits as well as potential survivor benefits.
A spouse is eligible for up to 50% of the other’s FRA benefit. The actual percentage depends on when you file though. Similar to filing on your own record, if you file prior to FRA, you receive a reduced benefit. This benefit ranges between 35% – 50% of your spouse’s FRA benefit.
While filing gets more complex for a married couple, developing a strategy for both benefits can lead to much higher lifetime benefits. One strategy is for the lower earning spouse to take benefits at age 62 (or before FRA) while the higher earner delays to age 70. This allows for some income now with a much higher benefit later and the maximum survivor benefit. If spouses have a wide age disparity, the choices can be even more complicated. The key takeaway is that there are many different strategies that should be reviewed thoroughly.
Don’t Forget About Taxes
Between 0-85% of your Social Security benefit will be taxable depending on your overall income level. Consider the following example: Jane and John Doe need $80,000 per year of gross income and want to see how taxes would change if they file for Social Security at age 62 versus FRA. For the sake of simplicity, both of their FRA benefits are $30,000 per year at age 67 which would be reduced to $21,000 at age 62.
| Age 62 | FRA | |
| IRA Distributions | $38,000 | $20,000 |
| John’s SS | $21,000 | $30,000 |
| Jane’s SS | $21,000 | $30,000 |
| Taxable portion of SS | $18,750 | $11,100 |
| Income (before tax) | $80,000 | $80,000 |
| Taxable Income | $26,050 | $400 |
In this example, approximately 45% of their benefits would be taxable if they file early and take larger IRA withdrawals whereas only 19% of their benefits would be taxable if they wait until FRA. By waiting until FRA, they have a higher benefit each year and have less taxable income. Taxes are often overlooked when assessing when to file for Social Security, but it is important to pay attention to taxation as well. A penny saved is a penny earned.
Plan for a More Confident Financial Future
Planning ahead with your financial advisor can help you feel confident about when to apply for Social Security and how to maximize benefits while minimizing taxes. At Midwest Capital Advisors, we build customized plans designed around each individual and their financial goals. Contact us anytime if you’re planning for your retirement years or are already retired and have questions about filing for Social Security. Our advisors are here to help you plan for a more confident financial future.