It’s not always financially optimal to wait until age 70.
When to file for Social Security benefits is one of the most important decisions you’ll make in retirement. Most people first become eligible for retirement benefits starting at age 62, but experts typically recommend waiting until 70 to maximize your monthly check.
Waiting until age 70 could increase your Social Security benefit by roughly 77% compared to claiming at age 62. Most people will live more than long enough for the bigger monthly check to make up for the years of foregone benefits. Indeed, the optimal decision for a single retiree is to wait until 70, barring any reasons to expect a shorter-than-average life.
But no financial decision should be made in a vacuum. There are plenty of reasons why it might make sense to claim benefits long before age 70. In fact, I plan to claim my Social Security very early, perhaps as soon as I’m eligible. Here are three reasons why it makes sense for me.
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1. My spouse (to be) is the higher earner
Social Security claiming strategies can become a lot more complex when you’re married in retirement.
It won’t always be the case, but it usually makes sense for the higher-earning spouse to wait until age 70 to claim Social Security. As mentioned, the average person will live more than long enough for the bigger benefits check to make up for the Social Security they didn’t receive in their 60s.
On top of that, the lower-earning spouse may end up receiving survivor benefits if the higher-earning spouse passes away first. Survivor benefits allow the surviving spouse to collect total Social Security benefits equal to the amount the higher-earning spouse received before passing away. That means the lifetime value of delaying benefits until 70 for the higher earner should account for the dual life expectancy of both spouses.
At the same time, the other spouse should consider collecting retirement benefits as early as age 62. Typically, if one partner waits until age 70, the present value of expected household income is maximized by the other partner claiming as soon as they’re eligible.
2. I expect to claim spousal benefits
As things stand, I expect my future spouse’s retirement benefit to be big enough that I would receive more each month by claiming spousal benefits over my own. Spousal benefits are worth up to 50% of your partner’s primary insurance amount, which is the amount they’d collect if applying for benefits exactly when they reach full retirement age.
The key thing about spousal benefits is that, unlike personal retirement benefits, they do not receive delayed retirement credits. Personal benefits will increase by 8% of your primary insurance amount for each year you delay beyond your full retirement age up until age 70. Spousal benefits will max out at your full retirement age.
For me, that’s age 67. As such, there’s no reason I should delay claiming benefit beyond that age. That’s despite the fact that I’m older than my partner, she’s likely going to delay benefits until age 70, and I’ll be waiting several years to switch to spousal benefits. It’s worth taking the slightly smaller personal benefit for a few years before switching to the bigger spousal benefit.
3. I’m well-positioned to avoid taxes on Social Security income
One of the most overlooked challenges of collecting Social Security in your early 60s is Social Security taxation. Those taxes can completely nullify the benefits of strategies like Roth conversions and capital gains harvesting.
That’s why it’s important to position your finances to minimize the effect of Social Security taxes before you apply. If you don’t, you’ll end up decreasing the value of your benefits.
Social Security taxes are based on a metric called combined income, which is equal to the sum of your adjusted gross income, any untaxed interest income, and half your Social Security income. If your combined income exceeds certain thresholds, a portion of your Social Security income becomes taxable. The thresholds don’t get adjusted for inflation, so they’re increasingly difficult to avoid.
| Taxable Portion of Social Security | Combined Income (Single Filer) | Combined Income (Joint Filer) |
|---|---|---|
| 0% | Less than $25,000 | Less than $32,000 |
| Up to 50% | $25,000 to $34,000 | $32,000 to $44,000 |
| Up to 85% | More than $34,000 | More than $44,000 |
Data source: IRS.
I expect to be able to maintain a very low combined income in retirement, thanks to savings in Roth accounts and increasing my cost basis on taxable assets. We plan to stop earning income well before reaching the age of eligibility for Social Security, which will provide ample time to strategically take capital gains and convert some pre-tax retirement assets to a Roth account. As a result, we should be able to keep our adjusted gross income low in our 60s, minimizing the tax burden of Social Security.
I’m fully aware that most people aren’t in the fortunate position I’m in. But doing whatever you can to position your finances strategically before you start Social Security is an important factor in making the most of your benefits, whether you’re claiming at age 70 or well before it.