A lot has been written as to why you should wait until 70 to start collecting your Social Security benefits. In the right situation, that is a true statement, but everyone’s situation is different. I have always said that there are as many good reasons as bad reasons to wait to collect your Social Security benefits.
It is especially important for a couple to determine their claiming strategy using joint life expectancy. The claiming strategy for a couple should never be looked at individually. One of the main reasons for a couple to wait until 70 is a strategy geared to the high earner. By the delaying of taking benefits, the high earner can provide a lower earning spouse with the highest survivor benefit when the high earner passes away. So as a couple, if you are the high earner, it may make perfect sense for you to wait until 70 to start your benefits to provide your spouse with a significantly higher survivor benefit.
One must keep in mind that by using this strategy of delaying benefits, it complements your overall retirement planning. Social Security benefits are a very important piece of retirement planning. With most couples, it represents approximately a $1,500,000 lifetime annuity. Turning on your Social Security benefits is one very important piece of the retirement planning puzzle. While making your claiming strategy decision, other issues to keep in mind are your health, cash flow, how long you plan to work, and so many other factors and decisions.
Let’s look at two situations where you may decide as a high earner not to wait until 70 and take your Social Security benefits sooner.
Let’s look first at a couple the same age – 67 – in 2023 and at their full retirement age with an adopted child.
At full retirement age, the couple is not subject to the annual earnings limitations. The high earner has a full retirement age benefit of $3,000. Children under 18 or 19 (if still in high school) are entitled to receive a benefit equal to 50% of the parent’s full retirement age benefit. The parent, as a representative for the child, will receive a monthly benefit of $1,500 a month for the next 18 plus years. By filing for benefits at their full retirement age of 67 as opposed to waiting until 70, the couple will receive $47,000 more in overall lifetime benefits by filing earlier at their full retirement age of 67 as opposed to waiting until 70. So not only are the overall lifetime benefits greater by filing early, but the cash flow is also greater, and the child’s benefits can be used to pay for a college education. Even if the child is 10 years old when the parents reach their full retirement age, you need to consider filing earlier rather than later when a child under 19 is involved. This example may be a little outside of the norm, but it provides great context to the multitude of variables and life situations happening today – and more frequently.
Here’s our second example – where the husband works inside the Social Security system and the wife does not.
The wife has minimal earnings inside the Social Security system but teaches in a state that does not contribute to Social Security. The wife has what is called a non-covered pension. When the wife retires, she will receive a state teachers’ pension of $4,200 a month. This pension payment will be subject to both the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO). The wife’s own Social Security benefit will be very small, and the spousal or survivor benefit will be offset $2,800 by the Government Pension Offset because of the State teacher’s pension. ($4,200 X 67%). Timing is very important here as the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO) do not take effect until the non-covered pension is started. Although filing at age 70 produced a slightly higher overall lifetime benefit for this couple, it was not enough to offset their desire to use the cash flow up front to travel. The other aspects of making this decision were that the breakeven year for filing early versus later was 2039, the wife was experiencing some health-related issues, and the State teachers’ pension was determined adequate for the wife’s cash flow requirements, along with their other assets to sustain her lifestyle when her husband passes away.
We just cannot forget: Taking the wrong benefit – at the wrong time – means always smaller and forever!
You need to formalize a Social Security claiming strategy specifically for your situation.