When to claim Social Security retirement benefits is one of the biggest financial decisions a retiree will make.
Some social media influencers recently claimed to have cracked the code on that decision — but experts say the calculation they are using is missing crucial context.
Start receiving Social Security retirement benefits at the earliest possible age, 62, some influencers say, since cumulative benefits could be more if started earlier, even though higher monthly checks come with delaying.
The idea is based on a “break-even” age — the point at which delaying benefits yields more total income than claiming early. That typically falls in the late 70s or early 80s.
The Social Security Administration once provided a break-even analysis for retirement beneficiaries. However, SSA ended that practice in 2008 amid concerns from within the agency, as well as from external stakeholders and researchers, that it may distort claiming decisions.
Subsequent research published in 2011 by the Rand Corp., a nonprofit think tank, found that the break-even analysis may have a “very strong effect” in prompting individuals to claim benefits early, which can permanently reduce the size of their monthly checks.
Why break-even ‘is the wrong framing’
One big problem: No one knows when they will die, which makes a break-even analysis imprecise. Moreover, Social Security can be thought of as longevity insurance that can protect you from outliving your savings.
“I continue to think a break-even analysis is the wrong framing for considering when to take Social Security retirement benefits,” said Jason Fichtner, a former Social Security Administration executive who worked at the agency when it stopped using the assessment.
Fichtner previously served in roles including acting deputy commissioner and chief economist at the SSA. He is currently senior fellow at the National Academy of Social Insurance, a nonprofit focused on social safety net programs, and executive director of the LIMRA Retirement Income Institute, a research initiative within the insurance trade association LIMRA.
Instead, experts, including Fichtner, say retirement beneficiaries should consider other factors when deciding when to claim Social Security retirement benefits, particularly how the timing will impact the size of their monthly checks.
Claiming at age 62 provides the minimum monthly benefit. Beneficiaries who wait until full retirement age — typically age 66 to 67 based on year of birth — will receive 100% of the benefits they’ve earned. By waiting until age 70, individuals get the maximum benefit, a 77% larger monthly check for having waited from age 62, according to Fichtner.
“Another way of framing this discussion is to realize that claiming at any age before age 70 is a penalty,” Fichtner said.
While break-even framing may initially put someone who claims at age 62 ahead, they will be behind for the rest of their life after they reach their personal break-even age, Fichtner said.
Here are some of the other factors experts say should also be considered when deciding when to claim Social Security.
Consider how long you could live
By starting with the question, “How long could I live?” prospective beneficiaries will get a different answer than by asking, “How long will I live?” said Joe Elsasser, a certified financial planner and president of Covisum, a Social Security claiming software company.
Likewise, the Social Security Administration states in its educational materials that “retirement may be longer than you think,” and many individuals will live longer than the average lifespan.
Factor in the rest of your financial plan
By just focusing on the break-even analysis, prospective Social Security beneficiaries neglect to consider their full financial plan, according to Elsasser.
That includes the impact their income will have on their taxes, as well as how their benefit income will impact the rest of their portfolio, Elsasser said.
While some claim Social Security early to invest the money, it is important to remember that investment returns are not guaranteed. Yet individuals who delay claiming Social Security get an 8% benefit increase for every year they wait from full retirement age up to age 70 — a guaranteed return that can be difficult to match in the market.
Plan for you and your spouse, if married
Married couples where one individual earns a higher wage “really should not use break-even as a decision point,” Elsasser said.
The higher earner may consider how long they will live when deciding to claim benefits. But if they fail to also consider how long their spouse will live, that may prompt dramatically reduced survivor benefits for their spouse should the higher earner die, Elsasser said.
Consider what will make you happiest
Waiting to claim can be difficult, particularly if income or health is a concern.
However, Elsasser said the clients he has who waited until 70 to claim are the happiest, due to the larger benefit payments they receive every month. What’s more, they don’t have to worry as much about market fluctuations affecting their income.
“There’s so much less stress on the portfolio,” Elsasser said.
