Social Security claiming strategies: When waiting until 70 is not the optimal move
While delaying benefits maximises lifetime income for the majority, new data highlights exceptions for single retirees, spousal claimants, and specific married couples.
Financial guidance consistently indicates that delaying Social Security claims until age 70 maximises lifetime income for approximately 90% of retirees. However, a study by the National Bureau of Economic Research reveals that the median household forfeits $182,370 in discretionary spending by failing to wait until the maximum age. Despite this significant average loss, specific demographic groups face distinct risks that may make earlier claims the more prudent financial strategy.
The original design of the Social Security system utilised early filing penalties and delayed retirement credits to balance benefits based on life expectancy at the time of its creation. With increased longevity, more individuals now live long enough to break even or gain financially by delaying claims. Nevertheless, the universal advice to wait does not apply to single retirees in poor health who are unlikely to reach their 80s. For these individuals, delaying claims risks collecting little or no benefits before death, rendering the potential for higher monthly payouts moot.
Married couples face a different set of calculations where strategy often hinges on survivor benefits. In households with a significant earnings disparity, it may be advantageous for the lower-earning spouse to claim benefits early. This approach allows the higher-earning spouse to delay their claim, thereby maximising the survivor benefit that the surviving spouse will receive. This strategy effectively uses the early claim to secure a larger lifetime payout for the higher earner and their eventual survivor.
For individuals intending to claim spousal benefits rather than their own retirement benefits, the incentive to delay disappears entirely. Unlike personal retirement benefits, spousal benefits do not accrue delayed retirement credits past full retirement age. Consequently, there is no financial advantage to postponing a claim beyond this threshold, and doing so may unnecessarily reduce the total lifetime value of the benefit.
The distinction between sales-driven financial professionals and fiduciaries is also critical in this context. Fiduciaries are legally required by the Securities and Exchange Commission to act in the client's best interest, whereas other advisors may be compensated based on the products they sell. Services such as those offered by Advisor.com aim to connect individuals with vetted fiduciaries to ensure that claiming strategies are aligned with individual health, marital status, and long-term financial goals rather than generic market advice.
