When to Claim Social Security

Most Americans are eligible for Social Security benefits at age 62, and the majority of Americans claim their benefits at age 62 or 63, according to recent research.1 But the Social Security Administration rewards you for waiting to claim your benefits; the benefit you would receive continues to rise each month until you reach 70.

For most individuals, it pays to wait a few years before claiming that Social Security check. The benefits of waiting may be even greater for married couples.

A Benefit Booster – For Some

One benefit-enhancing strategy — in which one spouse would “file and suspend” his benefits for the benefit of the other spouse — ended in April 2016. But a related strategy called “restricted application” is still permitted in limited circumstances. Spouses who were born before Jan. 2, 1954, and have reached Social Security’s full retirement age can choose to receive only their “spousal benefit.” That’s the benefit to which they are entitled based on their spouse’s earnings record. Meanwhile, they can delay claiming their retirement benefit based on their own earnings record and continue to receive credit for that delay.

Surviving Spouses

Waiting may be especially beneficial for higher-earning spouses because of the way Social Security calculates survivor benefits. Lower-earning survivors who have reached Social Security’s full retirement age can claim 100 percent of the benefit of the higher–earning deceased spouse. Therefore, the lower-earning spouse typically gets a larger benefit from the higher-earning spouse’s decision to delay a claim than they would have if they had delayed making their own claim, according to the Center for Retirement Research at Boston College.2

Tax Entanglements

Are Social Security benefits taxable? Yes, usually they are. In fact, many middle class couples could fall victim to a form of double taxation. Here’s why: The actual percentage of the benefit that is taxable is between 0 % to 85% percent, depending on your total income. According to a study by the Society of Actuaries, “Because increases in regular income increase the portion of taxable Social Security benefits, the taxpayer may end up paying not only the marginal tax on regular income but also additional tax because of the Social Security.”3

For example, if a retired couple in the 25% tax bracket takes an additional $1,000 in taxable withdrawals from their 401(k), they could end up paying a 46% tax rate on that withdrawal.4

If one spouse is younger than full retirement age and continues to work, double taxation becomes even more likely. "This earned income could lead to the taxation of Social Security benefits," says Ben Rizzuto, Associate Director of the Retirement Strategy Group at Janus. "The goal is to figure out the best way to use Social Security, earned income, and retirement assets to achieve the best outcome as you begin your retirement years."

One strategy for avoiding this double whammy is waiting longer to claim your Social Security benefit. With a larger benefit, you may ultimately need to withdraw less from your taxable retirement accounts. Other strategies include converting your 401(k) or traditional IRA into a tax-free Roth IRA account or making other moves that reduce your taxable income.

A Little Help, Please

There’s no one-size-fits-all answer to the question of when married couples should file for Social Security benefits. Fortunately, online calculators can help you choose an advantageous time based on your ages, historical wages, current health status, or life expectancies.

Information on the Social Security website (www.ssa.gov) may be useful. Ultimately, however, a qualified financial advisor may be best equipped to help you make a decision that could affect your finances for many years to come.

1Center for Retirement Research at Boston College, “Trends in Social Security Claiming,” May 2015. http://crr.bc.edu/wp-content/uploads/2015/05/IB_15-8.pdf

2Center for Retirement Research at Boston College, “How Much Do Households Really Lose By Claiming Social Security at Age 62?” March 2009. http://crr.bc.edu/wpcontent/uploads/2009/04/WP_2009_11-508.pdf

3Society of Actuaries, “Deciding When to Claim Social Security,” 2012. https://www.soa.org/Files/Research/research-pen-deciding-ss.pdf

4Society of Actuaries, “Deciding When to Claim Social Security,” 2012. https://www.soa.org/Files/Research/research-pen-deciding-ss.pdf