Social Security Benefits: When Should I Claim?
Contributed by Garrett Kerr, CPA.
My parents recently hit lucky number 62 and with it came questions about social security. A couple of things that were important for them to note in their discussions about when to claim benefits were:
- The full retirement age, which is the age you are entitled to receive 100% of your benefits, is changing from 66 to 67. For individuals born in the years 1955 – 1959, the retirement age moves in two-month increments. For example, my dad, who was born in 1955, has a full retirement age of 66 years and 2 months. Anyone born in 1960 and afterwards will have a full retirement age of 67 years.
- Spousal benefits, which enable an individual to claim up to 50% of their spouse’s benefits, are important to consider. For my parents, this benefit was news to them. My mother has not worked since I was a child, and thus the ability for her to receive benefits based off of my dad’s benefit calculation would result in more money for them. However, spousal benefits can not be claimed until both spouses claim benefits. Thus, my mom would not be able to earn up to 50% of my dad’s benefits until he claims his benefits himself. This benefit is also a progressive percentage. Were my mom to begin claiming benefits at age 62, she would only receive 32.5% of my dad’s benefits.
When to claim social security benefits is a complicated question and will vary for each situation. There are several other factors to consider including: life expectancy, other retirement savings, tax considerations, martial status, and income differences between spouses. In my parents’ situation, it made sense for my mom to claim benefits at 62 and start collecting her own benefits; then, once my dad starts claiming his benefits, she will receive up to 32.5% of his benefits.
According to a study done by the Society of Actuaries, a “rule of thumb is the older and/or higher benefits spouse will generally delay taking his or her benefit until age 70 and the other spouse may choose to claim at any time after age 62 based on other considerations.” This conversation will be had among many households in the near future as the Baby Boomer generation reaches retirement age. Consult with your financial advisor and your tax advisor to decide when is best for you to claim social security benefits. Give us a call with any questions!