For many Americans, claiming Social Security is a highly anticipated and much welcomed moment. The decision as to the best time to claim benefits, however, should really only come after a thoughtful analysis of your personal circumstances -- both financial and non-financial. If you do decide to claim benefits, be sure to have given the below questions some thought first.
Here, we'll answer four questions that most pre-retirees likely have before applying for their first Social Security check.
1. What will you do in retirement?
Some people are extremely excited to retire but find themselves bored without a structured schedule or lively social life. It's a great idea to retire "to" something as opposed to "away" from a job, so try to have a rough sketch of how you'll spend your time -- especially in the early days of retirement.
After a period away from work, many people, perhaps unsurprisingly, opt to take part-time work. This can have a dual positive effect: First, you'll add some valuable guideposts to your week, and second, any extra income you earn can go to reduce any pressure on your investment portfolio. As we've seen in recent weeks, volatility in the markets can make it both uncomfortable and impractical to sell stocks.
You may find that your life circumstances, especially if you continue to work, allow you to delay taking Social Security for a few more years and, ultimately, help you score a larger benefit check in perpetuity.
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2. What if you expect to live a longer-than-average life?
If you're relatively healthy and have a reasonable expectation of living well into your 80s or 90s, you may well consider delaying taking Social Security -- even until age 70, in certain circumstances. Typically, claiming benefits sooner makes sense if either you simply need the extra income or you're facing significant health issues that may hinder your longevity.
On the other hand, if you think there's a good chance you can live a very long life, you might consider waiting until at least full retirement age ("FRA") to take Social Security. This will help secure a larger monthly check that can act as a sort of longevity insurance, especially if you were to live until age 90 or higher. Regardless of the size of your investment portfolio, a steady, government-issued check provides a valuable lifeline -- especially for the very old.
Your health -- in addition to your investment portfolio -- is one of the true key factors in determining when to first file for benefits.
3. Do you understand spousal benefits?
Traditionally, the spouse with higher lifetime earnings is encouraged to wait until age 70 to collect benefits, while the lower-earning spouse is eligible to claim the higher of their own benefit check or one-half of their spouse's benefit check. This also assumes that both spouses have reached age 62.
The calculation of exactly how much you'll receive is complex, but the general advice is that higher earners should wait longer to claim benefits, and the lower earner (or non-working spouse) should take the highest amount available to them as soon as possible.
Spousal benefits (50% of the higher earner's check) become available to the lower-earning spouse once the higher-earning spouse claims benefits; if the spousal benefit exceeds the lower earner's monthly check, the Social Security Administration will award the higher amount as soon as the higher earner files.
If the higher earner were to die before they claimed benefits, the lower-earning spouse would have access to their late partner's maximum benefit, provided the surviving spouse is over age 60.
Take your time with the decision
The decision to claim Social Security isn't easy. It can only be made in sound fashion by thoroughly examining your work history, life expectancy, and the many financial and non-financial aspects of what it means to be retired.
On the one hand, claiming benefits early can allow you to escape the traditional workforce, but you may be shortchanging yourself in the long run if you claim too soon. On the other hand, waiting too long can leave you unhappy in a job longer than you'd like to be.
Regardless of your ultimate decision, take the time necessary to thoroughly evaluate your entire financial picture and make the best decision for yourself and your family.
