The Right Time to Collect Social Security

Figuring out when to claim Social Security retirement benefits may be fairly straightforward if you are single and are not eligible for benefits from a deceased spouse. You can claim benefits as early as age 62 or as late as age 70. You don't have to begin collecting Social Security by age 70, but your benefit will not increase if you delay claiming past your 70^th birthday.

If you begin taking your benefit at age 62, your benefit will be reduced by 5/9 of 1 percent for the first 36 months prior to attaining your full retirement age and 5/12 of 1 percent for each subsequent month. Depending on your full retirement age, the result is a permanent reduction of between 25 percent and 30 percent. For more details, see the Table on Benefit Reduction for Early Retirement.

If, however, you wait to begin collecting your benefit until after you reach your full retirement age, your benefit will be increased by 2/3 of 1 percent for each month of deferral until age 70. The amount of increase depends on the number of months you delay. It is important to note that there are no benefit increases after you reach age 70.

If you work and begin receiving benefits prior to your full retirement age, your Social Security benefit will be reduced if you exceed the prevailing annual limit on earned income. If you are under full retirement age for the entire year, Social Security will deduct $1 for every $2 that you earn above the annual limit of $23,400 (2025). In the year you reach full retirement age, the reduction is $1 for every $3 on earnings up to $62,150 (2025), and applies only to earnings in months prior to full retirement age.^* However, the amount your benefits are reduced isn’t truly lost. Your benefits are recalculated, and a credit is provided for the months where benefits were reduced or withheld due to excess earnings.

Also, your benefits are subject to income tax if your provisional income (roughly equal to modified adjusted gross income plus 50 percent of Social Security benefits) exceeds certain thresholds. Provisional income in excess of $25,000 for single filers and $32,000 for married couples filing a joint return will result in 50 percent of the benefit being subject to income tax. This increases to 85 percent of the benefit being subject to tax for single filers with provisional income exceeding $34,000 and married couples with more than $44,000 of provisional income. Keep in mind these limits are not indexed for inflation. Consult your tax advisor if you have questions about the taxation of your benefits.^**

Other factors to consider include your health and personal savings. Keep in mind if you delay Social Security benefits, you will have a shorter period of time over which to collect them. Depending on when you die, you may have collected a larger sum of cumulative benefits had you filed at or before your full retirement age. If, however, you live beyond this so-called “crossover point,” your cumulative benefits will be greater if you take advantage of the deferral credits applied to Social Security retirement benefits. Your own personal health and family longevity are important factors to consider before making this decision. For additional information on this and other aspects of Social Security, go to www.ssa.gov.

What if you are married? Suddenly, the choice gets more complicated. As you and your spouse weigh when to claim benefits, you may want to consider four additional rules:

• You are eligible to receive benefits based on your own earnings record and/or that of your spouse. Social Security will pay benefits earned under your own earnings record (if any) first and will increase the benefit for any additional amount based on your spouse’s earnings record. The combined total is approximately 50 percent of your spouse’s benefit at their full retirement age. If your own benefit is greater than the spouse benefit, no adjustment is made and you are paid your own benefit at the time of filing. For spouses with relatively modest lifetime earnings, the spousal benefit may be worth more than the benefit they qualify for based on their own earnings record.
• For your spouse to receive benefits based on your earnings record, you must first claim your own retirement benefits. But even if you claim your benefits, your husband or wife doesn't necessarily have to claim Social Security right away.
• If your husband or wife delays taking Social Security beyond their full retirement age, there is no increase in the spouse benefit, but their own retired worker benefits will be increased by 2/3 of 1 percent for each month that they delay until age 70. The spouse benefit is based on the retired worker’s primary insurance amount (PIA), which is the amount paid when the worker attains their full retirement age. Spouse benefits are not reduced by the early filing of the retired worker, but if you claim spouse benefits on your spouse’s earnings record before your full retirement age the spouse benefits you receive are reduced.
• Social Security retired worker and spouse benefits are subject to the “deemed filing rule,” which quite simply means that when you apply for benefits you are deemed to be filing for all benefits to which you are entitled. Importantly, Social Security surviving spouse benefits are not subject to this rule and afford additional planning flexibility to those that are eligible for these benefits.
• If you were the family's main breadwinner and you delay benefits, including delaying beyond your full retirement age, you will increase not only your own benefit, but also the survivor benefit that your husband or wife may receive, assuming you predecease him or her.

What are the implications of all this? If you and your spouse are both in poor health or family history suggests longevity isn't on your side, you may both want to claim Social Security earlier. You might also want to claim benefits early if you have unmarried children under the age of 18, or age 19 if they are a full-time student in elementary or secondary school, or a disabled child if their disability began before age 22. These family benefits may be valuable in certain situations and should be reviewed with an advisor that is familiar with how they work. To learn more about family benefits, go to www.ssa.gov

If you don't have children under the age of 19 (or a disabled child) and there is a reasonable chance that you or your spouse could live into your 80s, the decision gets trickier. One possible strategy: The spouse with lower lifetime earnings might claim benefits as early as age 62, at a reduction, based on his or her own earnings record, while the higher-earning spouse postpones benefits.

Why postpone benefits if you were the higher-earning spouse? If you delay, you will boost both your benefit and also the survivor benefit that is potentially payable to your spouse should you die before them.

Problem is, if you don't claim benefits, your spouse may be able to get benefits based on his or her own earnings record, but they won't be eligible to receive spousal benefits until you file for your retirement benefits. The spouse benefits when combined with your retirement benefits may be more valuable than the increased retirement benefits. Keep in mind that, because of the survivor benefit, it may make sense for you to delay benefits, even if your health isn't good. In essence, if you are married and you were the family's main breadwinner, your Social Security benefit could live on after your death, and you may want to postpone benefits for the sake of your spouse.