Claiming Your Social Security Benefits Early: When It May Not Pay to Wait

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Ryan Yamada, CFP®, Senior Wealth Planner

We’ve all heard the conventional wisdom about claiming Social Security: you should wait as long as you can before claiming your benefit. Wait right up to age 70, if possible. After all, that’s when you would get the greatest monthly benefit.

But that may not be the right move for some.

What if I told you that, in some cases, taking your benefit as soon as you are eligible is the most ideal thing to do? I know it seems counterintuitive. But there are a few specific scenarios where that is just the advice I would give to clients.

Let’s dig into a few of these scenarios individually.

Scenario #1: Waiting on a Higher Spousal Benefit

Let’s say you’re married (or were married) to someone who made substantially more than you. And you know that your own Social Security benefit would never be more than your spousal benefit, even if you waited until 70 to claim. In that case, you would be advised to claim the spousal benefit.

However, you aren’t allowed to apply for spousal benefits until your spouse or ex-spouse begins claiming on their own Social Security benefit. And you know that that person is following the wait-until-age-70 rule.

In this scenario, it makes sense to claim on your own Social Security benefits as soon as they’re available at age 62. If you don’t, you’re essentially leaving that money on the table. Once your spousal benefits become available, you can then re-apply and begin receiving the higher monthly payment.

Here’s an example to help illustrate.

In this example, the maximum potential benefit received while waiting for the spousal benefit to begin would be $48,000. That’s a lot of money to not bother taking.

Scenario #2: You’re Entering Retirement During a Turbulent Market

You’re ready to retire. You’ve planned well, and you have your budget all laid out. You’re waiting to apply for your Social Security benefits until age 70 so you can get the maximum monthly payment. And in the meantime, your investment portfolio will provide your monthly income. This is an ideal scenario for most retirees. In most years.

But wait … it’s 2022. The market is down. And your portfolio has dropped 25%.

Sometimes life doesn’t go quite to plan. But that’s okay, it’s not time to panic. After all, the market was built to rebound. We just need to look at other ways to manage until that happens.

In this scenario, I might advise you to consider taking your Social Security benefit earlier than planned. Doing so would give your investment portfolio some time to recover with the market. You’ll obviously take a slight hit on your lifetime Social Security benefit, but if that amount is smaller than the potential gain your investments could make over time, it’s a smarter play in the long run.

Scenario #3: You Wouldn’t Break Even by Waiting

When a pre-retiree is looking for advice on when to begin claiming Social Security, I generally try to calculate a “break-even” age for them. That’s essentially the age that they would need to live to in order to make the delay worthwhile.

When waiting until age 70 to begin claiming Social Security, most people would need to live into their early- to mid-80s to hit that break-even point.

If you have good reason to believe that you will not live into your 80s, and you have no spouse or children who would depend on your benefit, you might want to consider claiming your Social Security sooner rather than later. You can always ask your advisor to help you estimate the best age to claim.

Talk to a Professional

When considering any of these three scenarios, you should first talk to a qualified professional to get expert advice on your unique situation. They can help advise on whether any of these could help you get the most out of your Social Security benefits – or they may have other advice for you to consider.

If you need help finding a financial advisor in your area, we can help. Contact us today.

Need Help With Social Security? Give Us a Call

Social Security can be complicated. Talk to a qualified financial advisor today to get professional advice today. Need help finding a financial advisor in your area? Give us a call today so we can match you with an advisor who will put your needs first.

This blog is for general information only and is not intended to provide specific legal, tax, or other professional advice. For a comprehensive review of your personal situation, always consult with a tax or legal advisor.

Ryan Yamada is a non-registered associate of Cetera Advisor Networks LLC.

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