When to Claim Your Social Security Benefits

On January 31, 1940, Ida May Fuller of Ludlow, Vermont, received the first-ever Social Security check in her mailbox. The monthly benefit was $22.54.[1] In the years since, millions of Americans have paid Social Security taxes throughout their work life and relied on the monthly benefits as a key piece of their retirement income.  

Social Security is one of the most enduring legacies of the New Deal, enacted by President Franklin D. Roosevelt, and provides financial support to retirees, individuals with disabilities, and their families. Under current rules, retirees can start claiming Social Security benefits as early as age 62 or as late as age 70. Claiming benefits earlier means starting the income stream sooner, but your monthly benefit is permanently reduced. Claiming benefits later results in a higher monthly payment, but you forgo money you might have otherwise had in the meantime. 

There are many factors, ranging from your financial and tax landscape to your health and personal preferences, that can influence when to start your benefits. 

The primary reason to delay claiming Social Security is that your monthly benefit will be higher for the rest of your life. For instance, if your monthly benefit is $1,400 at age 62, delaying until age 70 would increase it to $2,480 – a 77% increase.[2] This can be especially true for a higher-earning spouse in a married couple, providing additional family income and security due to the way spousal and survivors benefits are calculated. Delayed benefits are essentially a form of longevity insurance, providing a larger income stream for as long as you live. 

Delaying Social Security can also create tax planning opportunities. Income drops dramatically for most people when they retire, pushing their tax bracket down as well. This creates space for tax planning strategies like Roth conversions, capital gains harvesting, and elective IRA distributions. Waiting to claim Social Security benefits amplifies the value of these tax strategies, which can result in lower taxes over your lifetime. 

There is another reason to avoid claiming benefits before your full retirement age, currently age 66 or 67, depending on your birth year. If you’re working and earning more than $21,240 (in 2023), your monthly benefit will be further reduced based on your overall earnings. This policy protects the Social Security system from paying retirement benefits to people who are not yet retired. 

Although delaying benefits can result in receiving more money over your lifetime, there are also reasons to consider claiming benefits earlier. Personal life expectancy is a major one. As mentioned above, delaying is a higher value if you live into your early 80s. For the most part, you can’t know in advance how long you will live, but your own health and family history can provide some limited insight into the likelihood that you’ll live into your 70s, 80s, 90s, or beyond. If health and longevity are a concern for you, claiming earlier could be the better approach. 

Additionally, delay is only possible if you have other resources you can use to support yourself while your benefits are growing. That could mean drawing on savings, working longer, or having other streams of income like a pension or rental income. Without other resources, you may need to claim benefits earlier to cover your day-to-day expenses in retirement. 

There’s also an ongoing question about the long-term health of the Social Security system itself. If nothing changes, Social Security is projected to “run out of money” in the 2030s, at which point benefits for current recipients would be reduced by about 23%.[3] This is a real issue, but we are reassured by the fact that Congress has myriad options to address, including raising the full retirement age, increasing payroll taxes, and means-testing benefits. History suggests that politicians will be hesitant to allow any cut to benefits for current Social Security recipients or people who are about to start receiving them.

In the end, the decision of when to claim Social Security benefits should be based on your individual circumstances. For many of our clients, delaying benefits until age 70 is the best choice, but this is not the right approach for everyone. 

At North Berkeley, we understand that planning for retirement is a journey filled with complex decisions, identity shifts, and changes to income taxes. Social Security benefits are an important component of any retirement plan, and we’re here to help you make the most of them.

Resources

[1]  Social Security Administration – A History of the First Benefits SSA.gov

[2]  This example assumes a full retirement age of 67. For people who have a full retirement age below 67, the math is slightly different.

[3] CBO’s 2022 Long-Term Projections for Social Security cbo.gov