Most people claim their Social Security benefits within the first year or so that they're eligible to receive them, which for regular retirement benefits is age 62. That has spawned a massive response from Social Security experts, many of whom argue that accepting the reduction in monthly payments that you have to suffer when you claim benefits at 62 is a mistake. That might be true for many people who need maximum Social Security income to make up for inadequate outside retirement savings.
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There are situations, however, in which waiting is not a good idea. In fact, if you're in one of the following categories of people, you should look closely at whether claiming Social Security when you're first eligible could be the best move you could possibly make.
1. When a spouse or children need you to file to get their own benefits
Current law requires that for family members to claim spousal or children's benefits on your Social Security work record, you must have filed for retirement benefits yourself. That's a major change from how things were just a couple of years ago, when workers had the ability to file for benefits at full retirement age and then immediately suspend them. That provided an incentive for people to wait to claim, because they could allow their own benefit to rise in value while still allowing an eligible spouse or child to get family benefits.
A spouse can still file for benefits on the spouse's own work history, so the situation in which this has the greatest impact is when you have a one-earner family. In particular, if the working spouse is younger than the other spouse, then having the worker file early to allow the non-worker to get what could be full spousal benefits can be a big improvement over forcing the non-working spouse to wait for years before getting anything. Moreover, spousal benefits don't get larger if you wait beyond full retirement age to claim, so in some cases, you could simply be giving up benefits with no compensation for doing so if you wait.
Relatively few retirees have children who qualify for Social Security, but if you're one of them, filing early can mean the difference between the child getting benefits or not getting anything. Social Security benefits for children typically end when the child reaches age 18 or finishes high school, whichever is later. Collecting a few years' worth of Social Security at a critical time could make a big financial impact on a child's future.
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2. When surviving spouses have two ways to get benefits
If your spouse has passed away, then you're in a position to make a smart decision with your Social Security benefits. Surviving spouses can claim either their own retirement benefits or survivor benefits on their deceased spouse's work history. Unlike in most situations, you can choose one without triggering the other simultaneously.
If you take your own retirement benefit at 62, you can start collecting something right away while waiting until later to collect survivor benefits. That can allow the amount you'll get monthly from survivor benefits to grow, resulting eventually in a bigger boost to your monthly payment. In some cases, the reverse strategy -- collecting a survivor benefit early while deferring your own retirement benefit until later -- can be the best one to get as much as you can from Social Security. It all depends on whether your work history or your deceased spouse's work history provides the larger Social Security payment.
3. When waiting on your Social Security benefits would boost your tax liability
Social Security benefits can be taxable if your income from other sources is above certain amounts. The calculation of how much of your benefits can be subject to income tax is complicated, but if your total non-Social Security income plus one-half of your Social Security benefits exceed $25,000 for single filers or $32,000 for joint filers, then you'll likely pay income tax on a portion of what you get from Social Security.
If you have substantial savings in traditional IRAs or 401(k)s, then taking distributions when you retire can result in a lot of taxable income that counts toward the Social Security taxation threshold. Therefore, it sometimes makes sense to accept the smaller monthly payouts early on with the expectation that earlier payments will either go untaxed entirely or be subject to less tax. In some cases, the reverse strategy -- taking big retirement account distributions early and deferring Social Security until later -- can be a smart move as well. It all depends on the timing of when you expect to need money in retirement.
Be smart with Social Security
Your Social Security benefits are a key resource for your financial future, so you don't want to squander them. In these situations, look closely at whether claiming your benefits at 62 is the best move for you.
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