Claiming Your Social Security Benefits Early: When It May Not Pay to Wait

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Ryan Yamada, CFP®, Senior Wealth Planner

We’ve all heard the conventional wisdom when it comes to claiming Social Security: you should wait as long as you can before claiming benefits. Wait right up to age 70, if possible. After all, that’s when you would get the greatest monthly benefit.

But that may not be the right move for some.

What if I told you that, in some cases, taking your benefit sooner than later was the most ideal thing to do? I know it seems counterintuitive. But there are a few specific scenarios where that is just the advice I would give to clients.

Let’s dig into a few of these scenarios individually.

Scenario #1: For Surviving Spouses

On a few somber occasions, we have had clients who have passed away before getting to fully enjoy their retirement. And while the earliest that someone can claim off of their worker or spousal benefit is at age 62, there is an exception for surviving spouses to claim a widower benefit as early as 60.

Like a spousal benefit, the surviving widow is eligible for their deceased spouse’s Full Retirement Age amount. Claiming any earlier than Full Retirement Age reduces this amount. However, one unique strategy is that should the surviving spouse also have their own earnings history, claiming off a widower’s benefit could then allow one to delay their own worker’s benefit.

Here’s an example to help illustrate.

In this example, by continuing to delay their own worker benefits, the surviving spouse significantly increases their lifetime amounts. Additionally, recognizing the opportunity to claim benefits early using a survivor’s benefit could add extra years of cash flow and tens of thousands of dollars.

Scenario #2: You’re Entering Retirement During a Turbulent Market

You’re ready to retire. You’ve planned well and you have your spending plan all laid out. You’ve even decided to wait before filing for your Social Security benefits – allowing your investments to create an ‘income bridge’ – so that you can maximize your future monthly payment. Like many who are able to retire early, this is an ideal scenario for most retirees and one that we often recommend…in most years.

But wait … it’s 2022. The market is down. And your portfolio has dropped 25%.

Sometimes life doesn’t quite go according to plan. But that’s okay, it’s not time to panic. After all, the market was built to rebound. We just need to look at other ways to manage until that happens.

In this scenario, we might consider taking Social Security earlier than anticipated. Especially for those clients without a cash buffer, access to home equity, or other means of ‘dry powder’, selling investments during a bear market is something we try to avoid. Tapping into your Social Security can provide much needed cash flow and allow your investment portfolio some time to recover. You’ll obviously take a slight hit on your lifetime Social Security benefit, but if that amount is smaller than the potential gain your investments could make over time, it’s a smarter play in the long run.

Scenario #3: You Wouldn’t Break Even by Waiting

When a pre-retiree is looking for advice on when to begin claiming Social Security, one common way to compare strategies is to calculate their “break-even” age. That’s essentially the age that they would need to live to in order to make the delay worthwhile.

When waiting until age 70 to begin claiming Social Security, most people would need to live into their late-70s or even their early-80s to hit that point.

If you have good reason to believe that longevity is not on your side, and you have no spouse or children who would depend on your benefit, you might want to consider claiming your Social Security sooner rather than later. While we never want to bet against our lives, it’s important to be realistic with your situation.

Talk to a Professional

Remember that a retirement income plan is a mixture of both financial and non-financial components unique to you. When considering any of these scenarios, insist on working with a Fiduciary advisor who specializes in this field.

If you need help finding a financial advisor in your area, we can help. Contact us today.

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Need Help With Social Security? Give Us a Call

Social Security can be complicated. Talk to a qualified financial advisor today to get professional advice today. Need help finding a financial advisor in your area? Give us a call today so we can match you with an advisor who will put your needs first.

This blog is for general information only and is not intended to provide specific legal, tax, or other professional advice. For a comprehensive review of your personal situation, always consult with a tax or legal advisor.

Ryan Yamada is a non-registered associate of Cetera Advisor Networks LLC.

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