When should I claim Social Security?

Knowing when to claim Social Security can be perplexing, but these insights can help you maximize your amount

01 Jul 2019

Key takeaways you can discuss with your UBS Financial Advisor

  • When it comes to claiming Social Security, there’s no definitive strategy or age that will be appropriate in every situation.
  • Benefit amounts vary for every individual and what’s “optimal” depends on what it is exactly that the family is trying to achieve.
  • In order to determine what strategy is best for your family’s situation, think of Social Security as a piece of your retirement puzzle.
  • Listen to the podcast.

When it comes to deciding whether to claim Social Security now or later, married couples should approach the decision with a long-term perspective. Otherwise, households may miss out on some of Social Security’s unique benefits.

For example, consider the “breakeven age,” which calculates the point at which deferring your claim on Social Security benefits should increase your total received (assuming a given life expectancy). This figure, which will differ from one spouse to the other, doesn’t take into account a key factor: Social Security benefits can extend beyond an individual’s lifetime in the form of survivor benefits.

What is the survivor benefit?

Social Security’s survivor benefits provide income to families of deceased workers and retirees. Spouses, former spouses and children may be entitled to this benefit; however, eligibility and benefit amounts are conditional. Prior to retirement, it’s important to understand what those requirements are and how benefit amounts can be affected. This understanding will help households coordinate claiming strategies so they can structure Social Security benefits in a way that complements their overall financial plan.

Considerations for pre-retirees

In contrast to spousal benefits, survivor benefits are reflective of the amount the deceased retiree was receiving when they passed. To see the significance of this distinction, let’s compare possible outcomes for a couple considering two different claiming strategies:

  • Strategy A: The working spouse claims at her Full Retirement Age (FRA) and receives USD 2,000 per month; her non-working spouse’s benefit would be USD 1,000.
  • Strategy B: The working spouse waits until age 70; her benefit with delayed retirement credits would be USD 2,640, but the spousal benefit would still be USD 1,000.

If the working spouse died at age 82.5 (her breakeven age), she would have collected the same total benefits in Strategy A as she would have in Strategy B. So, if she was looking to maximize her payouts in isolation, her claiming decision wouldn’t have mattered. But, when looking at the family’s outcomes, the distinction between the strategies lies within the outcomes of the non-working spouse—the survivor.

If the working spouse in Strategy A passes first, the survivor benefit would be USD 2,000. If the working spouse in Strategy B passes first, the survivor benefit would be USD 2,640—that’s over 24% more than the survivor benefit in the first strategy! This is why breakeven ages can be inadequate and misleading for married couples who are coordinating claiming strategies—especially those who are concerned with longevity risk.

Considerations for survivors

Widows and widowers who aren’t eligible for their own retirement benefits have limited options when it comes to their claiming strategies—they can either claim now, or later. But, those who are eligible for their own benefits and haven’t claimed them yet have more options that can be used to their advantage.

Bottom line

When it comes to claiming Social Security, there’s no definitive strategy or age that will be appropriate in every situation. That’s because benefit amounts vary for every individual and what’s “optimal” depends on what it is exactly that the family is trying to achieve. In order to determine what strategy is best for your family’s situation, think of Social Security as a piece of your retirement puzzle. Consider how it can be used as part of the overall financial plan, to reach the best outcome for the family.

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Disclosures