Navigating When to Claim Social Security

I so wish your retirement didn’t require you to make big decisions that will have an outsized impact on your financial security throughout your retirement. But that’s not the system we have.

Perhaps no decision is bigger than deciding when to start receiving your Social Security benefit. We have talked about this before: if you are in your late 50s and in good health, you should seriously consider the upside of delaying when you start, so you can earn a higher benefit.

As we have discussed, you are eligible to start claiming your benefit when you turn 62. But the benefit you receive at 62 will be permanently lower than if you wait. Every month past age 62 you don’t claim your benefit entitles you to a slightly larger payout when you do start collecting your benefit. Over time, those small incremental increases add up. At your full retirement age (age 67 for everyone born in 1960 or later) your benefit will be 30% larger than if you start at age 62. Moreover, if you wait all the way until you turn 70 your benefit will be 76% higher than if you start at age 62.

And remember what I have also frequently talked about: a woman who makes it to age 65 in average health has a 50% probability of still being alive at age 88. That’s an argument for waiting if you expect to rely on Social Security for a lot of your retirement income.

And many of you are. A new survey found that 40% of people nearing retirement expect Social Security to be a primary source of retirement income (more than their 401(k), IRA, or pension income).

Yet a recent academic study shines light on some potential reasons for why so many people claim at age 62, rather than waiting. Of course, if you need the income at 62 you are going to claim. Or if you arrive at age 62 in poor health, claiming your benefit early may make sense.

But there are many people who have other income sources at age 62—they continue to work, or they could tap retirement savings—who are still insistent on claiming at the earliest possible age, effectively accepting a lower payout than if they waited.

The researchers found that for some people there is a strong urge to not wait to claim the benefits they have earned. There seems to be a sense of “ownership” at play. The thinking is “hey I worked hard and paid into the program and I am not going to wait and run the risk of dying before I collect what I earned.”

Another dynamic that can make it hard to wait is that we all tend to be motivated to not lose, and will make suboptimal financial decisions simply because we want to avoid the sharp emotional pain of feeling like we lost something. In terms of Social Security, this “loss aversion” might be what compels people who would financially benefit from waiting to start collecting, to instead start at 62, or some point before their full retirement age. That is, people take the lower benefit at age 62 because they don’t want to “lose out” if they die before starting to collect their benefit.

I get it. Those reasons point to the fact that we are human beings who have to navigate hard psychological and emotional hurdles to arrive at the best financial decision.

Yet I am never going to stop pushing each of you to remain open to the value of waiting to claim your Social Security benefit if you are not dealing with a life-shortening illness.

I encourage you to keep returning to this thought exercise: What are the financial steps you might take today to be kindest to your future older self? The 88 year old. The 90 year old. The 95 year old.

Remember, if you make it to 65 in average health there is a good probability you may indeed be alive into (and past) your late 80s.

From a financial standpoint, if you do live a long life, waiting as long as possible to start collecting Social Security will pay off with higher lifetime benefits.

Yet this is not a decision you can just shelve until you are 61. If you haven’t made plans to delay claiming your Social Security at that point, chances are you will just go ahead and start at 62. It takes planning to be able to delay starting to collect your benefit. Maybe working a bit longer, at least part-time. Or maybe starting to tap some of your retirement savings rather than collecting Social Security early.

If you’re now open to the potential value of delaying when you start to collect Social Security, I have lots more detailed explanations and advice in my recently updated version of The Ultimate Retirement Guide for 50+.