Social Security: When Should You Claim?

One of the biggest questions you’ll face as you approach retirement is when to claim Social Security. Your claiming age can make a significant difference in how much you receive. You can generally begin collecting retirement benefits at age 62, but doing so can significantly reduce your monthly benefit compared with waiting until your full retirement age (FRA), which ranges from 66 to 67 depending on your birth year. For someone whose FRA is 67, claiming at 62 can reduce your monthly retirement benefit by about 30%.

The incentives also work in the other direction. Once you reach FRA, your benefit generally increases by 8% for each year you delay claiming until age 70. That means the difference between claiming at 62 and waiting until 70 can be substantial.

This is why conventional retirement planning often favors delaying Social Security. If you live well into your 80s or 90s, the larger monthly benefit can provide substantially more lifetime income. A higher monthly benefit can also become increasingly important later in life, particularly if Social Security is your primary source of income and you are facing rising healthcare or long-term care costs. For married couples, delaying the higher earner’s benefit can be especially valuable because it can also increase the survivor benefit available to the surviving spouse.

Social Security also provides lifetime income that adjusts with inflation. If longevity runs in your family and you have sufficient portfolio assets to comfortably fund the early years of retirement, waiting can make a lot of sense. But you shouldn’t view age 70 as an automatic target. Claiming earlier may deserve more consideration if you have health concerns or shorter longevity in your family.

The Cost of Waiting to Claim Social Security

Waiting also comes with a cost that is easy to overlook. If you retire at 62 but wait until 70 to claim Social Security, you still need to fund eight years of living expenses. Depending on your benefit, that could mean withdrawing tens of thousands of additional dollars from your investment portfolio each year.

Taxes add to that cost. If most of your savings are in traditional IRAs, 401(k)s or other pre-tax retirement accounts, those additional withdrawals create taxable income. You will need to withdraw additional funds to cover the resulting tax bill, creating further drag on your portfolio.

Larger portfolio withdrawals early in retirement also expose you to sequence-of-returns risk. If markets fall early in retirement, you may have to sell investments at depressed prices to fund your spending, leaving less invested to participate in a recovery. You are effectively spending down more of your portfolio, and giving up its potential future growth, in exchange for a larger Social Security benefit later. That can still be a worthwhile tradeoff, particularly if you live a long life, but can be consequential depending on the size of your distributions.

Maximizing Benefits Isn’t Always the Goal

Simply maximizing your expected lifetime Social Security benefits doesn’t always lead to the best retirement outcome. Many traditional Social Security analyses focus on expected value: which claiming age is likely to produce the most total dollars in your lifetime. But retirement decisions are also about expected utility, or how valuable those dollars are to you and when you receive them. An extra dollar of income in your 60s, when you may be traveling, pursuing hobbies or helping your family, may be more useful to you than an extra dollar much later in life. A good claiming strategy should therefore consider more than total projected benefits. It should also account for your spending goals for your retirement years.

What About Social Security’s Funding Shortfall?

There is also another source of uncertainty to consider: the future of Social Security itself. Current projections suggest the program’s trust funds could face depletion around 2032 or 2033. That does not mean Social Security disappears. Payroll taxes would continue coming into the system and could still support most scheduled benefits. But without changes from Congress, future benefits could face a meaningful reduction.

Congress will almost certainly address the shortfall in some form. Possible solutions include higher payroll taxes, raising or eliminating the taxable wage cap, gradually increasing the full retirement age, changing how cost-of-living adjustments are calculated, or some combination of these and other proposed remedies. However, if you are already receiving benefits or are close to retirement, you will likely receive some protection from any changes. Significant benefit reductions for older Americans appear unlikely, so concerns about the funding shortfall generally shouldn’t weigh too heavily on your claiming strategy.

So, When Should You Claim Social Security?

There is no universally best age to claim Social Security. The right choice depends on your health, life expectancy, marital status, taxes, portfolio, and spending needs. The approaching 2032 funding shortfall adds another planning consideration, particularly for younger Americans, but it shouldn’t drive your decision if you’re approaching retirement in the next few years. Instead of focusing solely on maximizing benefits, choose a claiming strategy that supports your broader retirement plan. Contact your Carnegie financial advisor to review your options and determine the approach that best fits your needs.

Frequently Asked Questions About Claiming Social Security

1. What is the earliest age you can claim Social Security retirement benefits?

You can generally begin collecting Social Security retirement benefits at age 62. However, claiming before your full retirement age can significantly reduce your monthly benefit.

2. How much does your Social Security benefit increase if you wait to claim?

Once you reach full retirement age, your benefit generally increases by 8% for each year you delay claiming until age 70.

3. How can I learn about my Social Security benefits?

You can find out your Social Security benefits by signing in or creating a My Social Security account on the official Social Security Administration website.

4. What is my social security Full-retirement Age?

Full Retirement Age by Birth Year:

• 1937 or earlier: Age 65
• 1943–1954: Age 66
• 1955: Age 66 and 2 months
• 1956: Age 66 and 4 months
• 1957: Age 66 and 6 months
• 1958: Age 66 and 8 months
• 1959: Age 66 and 10 months
• 1960 or later: Age 67

For informational purposes only. Data and other market and economic information referenced are from sources believed to be reliable, and opinions are subject to change. The information is not intended to provide specific advice or recommendations,  and all investments involve risks, including the loss of principal.

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