The Social Security Decision That Most People Get Wrong (And How to Get It Right)
Timing your Social Security claim is one of the most important retirement decisions you will ever make. Here is what most people miss.
Social Security is the one retirement decision most people make exactly once. You cannot go back. You cannot undo it. And yet the majority of Americans make this decision without ever fully analyzing what it means for their specific situation.
The most common mistake is simply claiming as early as possible, usually at 62, because the money is available and retirement feels like the right time to start collecting. Sometimes that is the right call. But often it is not, and the financial difference can be substantial over a 20 to 30 year retirement.
Why Timing Matters So Much
Your Social Security benefit is based on your earnings record and the age at which you claim. Claim at 62 and you receive a permanently reduced benefit. Wait until your full retirement age (currently 67 for most people) and you receive your standard benefit. Wait until 70 and your benefit grows by 8% per year beyond full retirement age.
The question is not simply, when do I want the money to start? The question is, what strategy produces the most income over the course of my retirement, given my health, my other income sources, and my spouse's situation?
Three Situations Where Waiting Often Makes Sense
You Are in Good Health
Social Security is designed so that the total lifetime benefit is roughly equal regardless of when you claim, assuming average life expectancy. If you expect to live into your mid-80s or beyond, delaying your claim generally results in more total income over your lifetime.
You Have a Spouse
For married couples, Social Security planning becomes a coordination exercise. The higher earner delaying their benefit can significantly increase the survivor benefit, which continues to the remaining spouse after the first spouse passes. This is one of the most important factors in the decision that many couples overlook entirely.
You Have Other Income to Bridge the Gap
If you have a pension, savings, or investment income that can cover your expenses from the time you retire until 70, delaying Social Security can make financial sense. Your bridge income covers the gap while your benefit grows.
Three Situations Where Claiming Earlier May Make Sense
Claiming earlier may be appropriate if you have health concerns that suggest a shorter life expectancy, if you are single with no survivor benefit considerations, or if you genuinely need the income to cover basic living expenses and have no other meaningful assets to draw from.
What About Taxes?
Up to 85% of your Social Security benefit may be subject to federal income tax depending on your total income in retirement. This is another reason why Social Security timing should be evaluated alongside your other income sources, not in isolation.
The Bottom Line
There is no universal right answer on when to claim Social Security. The right answer depends on your health, your spouse, your other income, your tax situation, and your retirement goals. What is universally true is that this decision deserves more than a five minute conversation with an HR representative on your last day of work.
If you are within 5 years of retirement and have not yet modeled your Social Security options, that analysis is one of the most valuable things you can do right now.
Alfred Edmonds is an Investment Advisor Representative at Cetera Investors in San Jose, CA. He specializes in retirement income planning for California educators, pre-retirees, and high net worth individuals. This content is for informational purposes only and does not constitute financial advice. A diversified portfolio does not assure a profit or protect against loss in a declining market.