Making the Most of Your Social Security Benefits

Social Security is one of the most reliable components of a retirement income plan. It’s guaranteed for life, adjusts with inflation, and provides a steady income stream no matter what’s happening in the markets. As a result, Social Security benefits help manage longevity risk, inflation risk, and market risk. But while the benefit itself is dependable, the way you choose to claim it can have a lasting impact on the total amount you receive over time.

The age at which you claim your benefits determines the amount of your monthly payment. You can start collecting benefits as early as age 62, but doing so will reduce your monthly payment permanently. On the flip side, delaying your claim past your full retirement age (somewhere between 66 and 67, depending on your birth year) can boost your benefit. Each year you wait to claim benefits between your full retirement age and age 70, you’ll receive about 8 percent more per year in delayed retirement credits. That’s a risk-free increase that’s hard to match elsewhere.

For example, if your full retirement age benefit is $2,000 a month, claiming at 62 would drop it to around $1,400. But if you wait until 70, it could grow to about $2,480.

These numbers alone make a strong case for considering your timing carefully, which makes the timing of your claim a powerful planning tool. Of course, not everyone can (or should) wait until 70, but understanding what’s at stake helps inform the decision.

Timing becomes especially important for married couples. Social Security claiming decisions are often more effective when viewed as a joint strategy rather than two separate ones. One common approach is for the higher-earning spouse to delay claiming in order to maximize their benefit. This not only increases their monthly income during retirement but also ensures that the surviving spouse receives a larger benefit down the road. The lower-earning spouse might choose to claim earlier, bringing income into the household while the larger benefit continues to grow.

Understanding the differences between spousal and survivor benefits is necessary to incorporate them into your plan properly.

• Spousal benefits allow spouses with little or no earnings history to receive up to 50% of their partner’s full benefit. These benefits are based on the worker’s full retirement age amount and don’t increase if the worker delays claiming. The worker needs to have filed for their benefits before a spouse can claim spousal benefits.
• Survivor benefits can equal 100% of the deceased spouse’s benefit, including any delayed retirement credits, which means the timing of the original claim can significantly affect the surviving spouse’s financial future. Unlike spousal benefits, survivor benefits allow for a separate claiming decision. For instance, if the worker benefit would ultimately be larger, one could claim the survivor’s benefit early and delay their own worker benefit to age 70 to take advantage of delay credits.

While Social Security won’t be your only source of retirement income, it is one of the few you can count on to provide consistent, inflation-adjusted payments for life. Analyzing when to claim your retirement benefits is a complex process with many rules and calculations to consider. It is helpful to use software or an advisor to support the decision-making process and identify a Social Security claiming strategy that supports your long-term financial goals.