Did you know that a quarter of Americans claim Social Security at 62, potentially missing out on thousands of dollars in benefits? If you're approaching retirement age this guide is for you. We'll break down four simple steps to help you maximize your Social Security benefits and explain the advantages of delaying versus claiming early.

The objective of this discussion is to maximize your lifetime benefits and to ensure financial security in your later years. Social Security is an incredibly powerful tool for providing “longevity insurance” because it is adjusted every year for inflation.

Understanding the Basics

To be eligible for Social Security benefits, you need to have contributed to Social Security for at least 10 years (more specifically, 40 quarters of working and paying Social Security Taxes). You can start claiming as early as 62, but your benefit amount will be permanently reduced. On the other hand, every month that you delay results in an increase in your benefit. Delaying your claim until age 70 results in the maximum benefit amount. The difference? A whopping 77%! For example, if your estimated benefit at 62 is $1,000, waiting until 70 could boost it to around $1,770, plus any cost-of-living adjustments.

Why the Range? The Magic of Actuarial Science

You might wonder why the Social Security Administration offers such a wide range of claiming ages. It all comes down to "actuarial magic" – a process where experts use vast amounts of data to calculate benefit amounts. The goal is to ensure that the "average" person receives roughly the same lifetime benefits, regardless of when they claim. Since the average life expectancy in the US is around 80, claiming at 62, 70, or anywhere in between, should theoretically result in similar total benefits over a lifetime.

Navigating the Uncertainty of Life Expectancy

The biggest challenge in deciding when to claim Social Security is the uncertainty of life expectancy. While we can't predict the future, we can make informed decisions by considering our health and family history. Ask yourself:

• How does my health compare to others my age?
• Do I have any medical conditions that might affect my lifespan?
• How long did my parents and grandparents live?
• Is there a history of longevity or specific health issues in my family?

The Power of Waiting: A Closer Look

Delaying your Social Security benefits can significantly increase their value, especially if you anticipate living beyond age 80. Here's a breakdown of the decision-making process for single and married individuals:

Step 1. Consider your immediate needs: If you need it, claim it.

If Social Security income is necessary to cover living expenses, claim as soon as you're eligible. Immediate financial needs always take priority over complex strategies.

Step 2. Single filers: Consider The 80-Year Mark.

If you expect to live beyond age 80 and can afford to wait, you will receive more in total benefits by waiting until age 70. If you're concerned about outliving your savings, delaying until age 70 can offer longevity protection.

If you believe your life expectancy is under 80, you should likely start claiming earlier. If you're still working in your 60s, wait until either you stop working or turn 67, whichever comes first. Most people can claim at 67 without reducing their benefits.

When in doubt, it might make sense to wait as long as you financial can. This would provide a financial cushion if your later years, a type of longevity insurance. 

Step 3. Married filers: The Higher Earners Decision.

For couples, the higher earner’s claiming decision is based on the life expectancy of the second spouse to pass away. If either spouse is expected to live beyond 80, it's generally wise for the higher earner to wait until age 70. This is because the surviving spouse will always receive the benefit of the higher earner, for life, no matter how long they live. This maximizes the surviving spouse's benefit, providing protection in later years.

Statistics favor delaying: According data from the Social Security Administration, there's an 85% chance that at least one spouse in a couple aged 62 will live to 80, and a 50% chance that one will live to 88.

When in doubt, the default should be for the higher earner to wait until 70. Statistically, for the “average” family, it makes sense for the higher earner to delay.

Step 4. Married filers: The Lower Earner's Decision. 

The lower earner’s claiming strategy depends on the first spouse’s life expectancy. If the first spouse is likely to live less than 80 years, it often makes sense for the lower earner to claim at age 62. If the first spouse is expected to live longer, delaying benefits can further increase the total lifetime value.

When in doubt, the lower earner should claim at age 62. This creates a hedge against uncertainty, ensuring at least one stream of income begins early.

How the Numbers Add Up

Here’s how different claiming strategies affect the lifetime value of your benefits. Social Security is indexed for inflation, so this calculation doesn't need to adjust for inflation. The table assumes a monthly benefit of $2,000 at full retirement age (FRA), 67.

Table 1. Total lifetime benefits accumulated when starting at age 62 and 70. Assumes FRA benefit at age 67 is $2,000.
Graph 1. Total lifetime benefits accumulated when starting at age 62 and 70. Assumes FRA benefit at age 67 is $2,000.

As you can see, delaying benefits can significantly increase the total value of Social Security over a lifetime. If you wait until age 70 to claim and live to 90, you would receive 27% more in lifetime benefits. Even better, this extra amount would come when you might need it most—in your later years of life.

The Bottom Line

Social Security claiming decisions are not one-size-fits-all. By focusing on maximizing your lifetime benefits and considering longevity protection for the surviving spouse, you can make informed decisions that benefit both spouses in the long run. While these guidelines provide a solid foundation, it's essential to customize your strategy based on your financial needs and health outlook.

Want to learn more? Visit the Social Security Administration website (www.ssa.gov) or consult with your financial advisor to discuss your specific situation.

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Note: This blog post is informed by the work of experts in the field much smarter than myself. For a comprehensive guide to Social Security claiming strategies, which has served me well for many years, I recommend Social Security Strategies: How to Optimize Retirement Benefits by William Reichenstein and William Meyer.