Welcome to our “Social Security Q&A” series. You ask a question about Social Security, and a guest expert answers it.
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Today’s question comes from Jennifer:
“A financial adviser told me that the Social Security benefit structure is designed so that for the average person, lifetime benefits are essentially the same regardless of when you claim your benefits. If you claim early, you get smaller benefits for a longer number of years. If you delay claiming, you get larger benefits for a shorter number of years.
So, for most people, it does not really matter financially when you claim. Is this financial adviser correct?”
Why claiming age matters
Jennifer, you ask a great question. It is one that I get from clients several times a year. Here is a “rule-of-thumb” for you: don’t trust any “rule-of-thumb” proposed for the Social Security system.
The idea that the age of claiming benefits has little impact on lifetime benefits may contain a small kernel of truth in some circumstances. But, for the vast majority of people, this notion is simply incorrect.
Consider the simplest case first: a single person (assume a male) with an average life expectancy (82 for a male currently 60 years old). Let’s call this person Fred. Suppose Fred will receive $2,000 a month in benefits at his full retirement age (FRA) of 67. Fred’s lifetime benefits would be $384,000 if he claims at his FRA and lives to the end of his 82nd year (i.e., 16 years from his FRA).
Claiming at 62 gets him $353,000, or 92% of his FRA amount. Claiming at age 70 would result in $387,000, or 101% of his FRA amount. Clearly, even in this simplest of cases, claiming age matters.
Life expectancy also plays an important role. For a person with life-shortening health problems, early claiming likely offers the greatest benefit. In contrast, for a person with a very long life expectancy (say, because of great genetics), delaying claiming to 70 probably has the greatest payoff financially.
Marital status also matters. For a married couple, family benefits are affected by the relative size of the couple’s benefits and by their relative ages. Of course, relative life expectancies continue to play a central role.
With all of these factors influencing lifetime benefit amounts, it should be evident that the notion that claiming age does not affect lifetime benefits is nonsensical.
Identifying the optimal claiming strategy is often very difficult. Mistakes can be costly. So, getting some inexpensive expert advice about optimal timing may save you many thousands of dollars.
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The questions I’m likeliest to answer are those that will interest other readers. So, it’s better not to ask for super-specific advice that applies only to you.
I hold a doctorate in economics from the University of Wisconsin and taught economics at the University of Delaware for many years.
Disclaimer: We strive to provide accurate information with regard to the subject matter covered. It is offered with the understanding that we are not offering legal, accounting, investment or other professional advice or services, and that the SSA alone makes all final determinations on your eligibility for benefits and the benefit amounts. Our advice on claiming strategies does not comprise a comprehensive financial plan. You should consult with your financial adviser regarding your individual situation.