Deciding when to claim Social Security benefits might be one of the most complicated aspects of retirement, but it’s also one of the most important.
When you start receiving benefits can have a profound effect on how much you receive over the remainder of your life. Waiting to claim can add tens of thousands of dollars to your retirement income over time, but it’s not right for everyone.
Gene L. plans to wait until he’s 70 to claim his benefits. The Money Talks Newsletter subscriber knows that waiting until age 70 would give him the largest possible monthly payment. But he’s unsure whether this could have unintended consequences or negatively affect his spouse’s benefit amount.
As Gene recently asked Money Talks News:
“Get your Money Talks News emails daily and always read them. Lots of great information and have used many.
I have been looking for a little advice on claiming Social Security and haven’t seen anything directly like I’m looking for. Wondered if you could help.
My wife and I are 62 and planning on retiring at 67. We are financially sound and middle class, but my plan was to draw Social Security at 70 to get the most out of it. Thinking we could live on her Social Security until I reach 70, with her drawing at 67. We both have over 40 years in the workforce. Our house and vehicles are paid off.
Is there a problem with me waiting 3 years before claiming Social Security, even if I don’t get a part-time job? Would she be able to draw my higher rate until I start taking it? Would my 3-year delay affect what I would receive?”
Gene, I’m going to take your questions one at a time, starting with the questions about your benefits.
Is there a problem with waiting 3 years after retirement to claim Social Security?
Technically, there is no problem with waiting three years after your retirement date to start taking Social Security. In fact, waiting until age 70 to claim is best for many people because it gives them the largest monthly payment for the rest of their life.
The real question is whether you can afford to postpone your benefits — that is, whether you will have sufficient funds to make it three years without a paycheck or Social Security benefits. Or, if you decide to work part time in retirement, the question is whether you can make it three years with only a part-time paycheck.
I cannot answer that for you without knowing the ins and outs of your finances. I recommend reviewing your financial needs to determine if you can wait to draw on your benefits.
Consider your monthly cash flow without drawing your benefit. In other words, determine how much income you expect to receive from other sources each month, and how much money you expect to spend each month in retirement. Will that income be enough to cover all your expenses, including any medical costs you have?
Based on what you’ve mentioned, you and your spouse have worked more than enough to qualify for Medicare health insurance coverage when you turn 65. But Medicare does not cover all medical costs, and traditional Medicare premiums typically increase every year.
The average retiree household spends over $8,000 per year on health care, and over $5,000 of that amount is insurance-related costs.
Does waiting until 70 to claim Social Security affect your benefits?
Delaying your benefit beyond your full retirement age — which is 67, from what you’ve said — can increase your monthly benefit payment by up to 8% annually. So postponing benefits until age 70 could result in tens of thousands of dollars in additional Social Security income over the rest of your life.
However, the amount of your benefit won’t increase if you postpone beyond age 70. In other words, waiting until 70 gives you the largest monthly payment, but there is no advantage to waiting longer.
You can find out exactly what your benefit amount would be if you claim at each age from 62 through 70 by reviewing your Social Security statement. It will also confirm whether you have enough credits to qualify for Medicare at 65.
Make an online account on the official Social Security website to access your latest statement and other resources.
Could your spouse take a benefit based on your higher amount?
As for your spouse, if she applies for benefits when she reaches her full retirement age — which, based on what you’ve said, is 67 — she would receive the higher of two benefit amounts:
- Her retirement benefit (which is based on her own earnings record)
- Her spousal benefit (which is based on your earnings record — it’s typically half of what your full retirement benefit is, meaning half of the benefit amount you’d receive if you claimed at 67)
Note that if your wife applies for benefits at full retirement age, she will be required to file for both of these amounts at the same time. This is known as the deemed filing rule.
The rule applies to everyone born after Jan. 1, 1954, and is supposed to result in the applicant receiving the larger of the two benefit amounts for which they are eligible. So when your wife applies, the Social Security Administration will review both amounts for which she is eligible and pay her the higher amount from that point forward.
Unfortunately, there’s no way for your wife to receive half the amount that you would receive at 70 if you waited until that age to claim.
Spousal benefits are only worth up to half of a spouse’s full retirement amount. Again, for your wife, that would be half the benefit amount you’d receive if you claimed at 67.
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