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Is There a Best Age to Claim Social Security?

Social Security is sometimes described as “actuarially neutral,” meaning that, at a program-wide level, the government should be indifferent to whether people claim earlier or later, because the reduction in monthly benefits that results when people claim early should be approximately offset by the fact that those people are collecting for a greater number of months.

But from the perspective of an individual person, the decision of when to claim Social Security is only neutral under a very specific set of circumstances. Much more often, there is a compelling reason to claim either earlier or later, depending on circumstances. (The most obvious example: You’re 62, and you absolutely need the money right now.)

Social Security’s Built-in Interest Rate

Consider an unmarried person, age 62, trying to decide whether to take benefits right away and invest them or wait until age 70 to claim benefits. If this person lives until exactly the average life expectancy for somebody already age 62 (i.e., 82.9 years, according to this table from the Social Security Administration), the break-even inflation-adjusted rate of return would be approximately 2%.

In other words, if this person were to live to just shy of 83 years, she would have been better off taking benefits at age 62 if she could get an inflation-adjusted return better than 2%, and she’d have been better off waiting until age 70 if she didn’t think a 2% inflation-adjusted rate of return was sufficiently likely.

Given current interest rates (with TIPS yields negative all the way up to 20-year maturities), 2% after inflation is a heck of a lot better than you can do from safe investments. And that makes delaying Social Security more attractive than it would be in a time when interest rates are high.

What’s Your Life Expectancy?

The life expectancy figure I mentioned above is an average of both men and women. For men, the actual figure is 81.4 years. For women, it’s 84.3 years. As a result, it’s generally more advantageous for unmarried women to delay Social Security benefits than for unmarried men to do so (because women who hold off on taking Social Security will, on average, receive their increased benefits for a greater number of months than men who hold off on claiming will).

And if you have any other reasons to think you have a life expectancy that’s meaningfully shorter or longer than average (e.g., a medical condition on the one hand or a family history of people living into their 90s on the other hand), that should affect your decision as well. The longer you expect to live, the better it is to delay Social Security.

Are You Married?

Consider Allan and Liz, married, both age 62. Because Liz spent many years out of the paid workforce to raise their children, Liz has a significantly lower earnings history than Allan. (And, therefore, Allan’s own retirement benefit is significantly greater than Liz’s.)

After either Allan or Liz dies, the surviving spouse will be receiving an amount equal to Allan’s benefit. (If Liz is the surviving spouse, it will be in the form of a widow’s benefit.)

As a result, if Allan chooses to hold off on claiming his own retirement benefit, he increases not only his own benefit while he’s alive, but also Liz’s widow’s benefit in the event that he predeceases her.

In contrast, if Liz holds off on claiming Social Security, the amount the couple receives is only increased during the period of time that they’re both alive.

Takeaway: It often makes sense for the higher-earning spouse to delay claiming his/her own benefit as long as possible, and for the lower-earning spouse to take his/her benefit at an earlier point.

Bonus tip: When the higher-earning spouse reaches full retirement age, if the lower-earning spouse has started taking his/her benefit already, the higher earning spouse can file a restricted application to claim only spousal benefits. This allows the higher earning spouse to at least receive something for a few years, while allowing his/her own benefit to continue growing until age 70.

In short, while Social Security may be “actuarially neutral” at a program level, most real-life people do stand to gain something by taking the time to consider whether claiming early, late, or somewhere in the middle is the best for their own particular circumstances.

Editorial note: Just last night I came across a paper (shared by BobK on the Bogleheads forum) that takes a more academic look at this same topic. The authors (John B. Shoven and Sita Nataraj Slavov) reached very similar conclusions. Also, if you’d like to check my math regarding the 2% inflation-adjusted return figure I quoted above, here’s the spreadsheet I used.

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  1. Mike,

    As someone aged 64, still employed full-time and with no plans to retire before my FRA of 66, is there any advantage in claiming benefits before that time? I’m inclined to think not, because I get another few years at my current salary to factor into my earnings record, more time to contribute to my personal portfolio, and also the tax implications of receiving benefits before FRA while I’m still working. Bascially, my question is whether there are any circumstances in which it might be advisable for a person over 62 and still working to claim social security.

  2. Larry, good question.

    Off the top of my head, having a reduced life expectancy is the only reason I can think of for somebody to do that.

    It’s probably worth noting here that for somebody who is younger than full retirement age and who is working full time, the earnings test would likely negate much (or possibly even all) of the effect of claiming benefits early anyway.

  3. Would it be advisable for a person who is 66 and still working to draw his social security at the age of 66? At that age there would not be a reduction in social security benefits for that individual if he continued working. If that person continued to pay social security would his social security benefits be increased each year? Or, would it be better for that person to work until 70 and then claim his benefits?

  4. Dianna,

    If a person continued working while collecting Social Security (and, as you mentioned, was past full retirement age, such that the earnings test wouldn’t come into play), yes, that person’s benefit would increase if the new years of earnings were higher than any of the 35 years currently included when calculating that person’s “Average Indexed Monthly Earnings.”

    As far as whether or not it makes sense to wait until 70 as opposed to claiming at FRA, there’s no one-size fits all solution. In general, the longer you expect to live, the more super-safe income you need, and the lower current market interest rates are, the more sense it makes to delay Social Security.

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