Strategizing Social Security

This blog post was written by Student Advisory Council member, Ryan Leung.

You’ve worked all your life and are finally approaching those golden years of retirement. For many people, taking Social Security benefits as soon as possible is a no-brainer. Yet waiting to receive Social Security benefits may actually result in a higher payoff. Knowing how to strategize Social Security first requires understanding the rules of the game, so read on to figure out how to maximize your retirement benefits.

The Basics

The minimum age to start claiming Social Security benefits is 62–if you are in immediate need of Social Security income to support yourself, you are allowed to start getting benefits. However, Social Security considers your full retirement age (FRA) to be 67 for those born after 1960 (see this link to find your FRA if you were born before 1960). If you start taking social security benefits at your FRA, your full monthly benefit is around $2,000. However, if you start taking Social Security before you reach your FRA, you’ll get 25% less per month ($1,500) for the rest of your life. Alternatively, if you delay receiving your benefits even after you reach your FRA, your monthly benefit will increase 8% a year, up until you turn 70. For instance, waiting until age 70 will result in an additional 32% in monthly benefits ($2,640 per month). 

Please note the numbers provided here might differ slightly depending on each person–you can find more information on your precise monthly benefits on the following Social Security Retirement Estimator. In addition, Social Security also includes a cost-of-living adjustment, which essentially means that benefits will rise around 2% each year to reflect rising living costs and inflation. For the year 2022 however, recent rising inflation resulted in the Social Security Administration increasing benefits by 5.9%.

Factors to Consider

The most important factor to consider when deciding when to take out Social Security is your expected longevity. While a person with the average longevity gets about the same amount of total lifetime benefit regardless of when they start taking Social Security, each person may have a sense of whether they are more or less likely to live to the average person’s age. For instance, common health markers such as blood pressure, cholesterol, or a history of health conditions may inform your decision as to whether to take Social Security earlier or later. The higher you think your life expectancy, the more you gain from delaying taking Social Security. 

As an example, consider Bob who is deciding when to take Social Security. Based on his health condition and the average age of death for his relatives, Bob thinks his life expectancy is around 85 years of age. Receiving $1,500 a month starting at age 62 would result in total lifetime payments of $414,000. Waiting until age 67 would result in total lifetime payments of $432,000. And waiting until age 70 would result in total lifetime payments of 475,200. Based on these calculations, Bob decides to wait until age 70 to receive his payments.

Another factor to consider is marital status. If one spouse dies, the surviving spouse can receive the higher of their own benefit or their deceased spouse’s benefit. As such, financial planners may advise the higher-earning spouse to delay claiming Social Security, so that the lower-earning spouse would receive a larger Social Security benefit if the higher-earning spouse dies first.

A final factor to consider is your lifestyle. If you are in need of Social Security earlier to make ends meet, it makes sense to take out money early even if the total payments may decrease. On the flip side, some people may anticipate higher expenses in the future, for healthcare or for leisure, so it may make more sense to wait and receive larger checks.

Being eligible for Social Security benefits is a great thing, but it is important to strategize your Social Security. Now that you understand the basics of Social Security, you are on your way to maximizing your total benefits. After all, you’ve put in all the work, and this should be the time to reap the rewards.