When should I claim Social Security?

When it comes to deciding whether to claim Social Security early or late, you should approach the decision with a long-term perspective. Otherwise, you may miss out on some of Social Security's unique benefits.

For example, consider the "breakeven age," which calculates the point at which deferring your claim on Social Security benefits until age 70 would increase your total dollars received. This figure, which is typically around age 83, is an important consideration, but it does not take into account Social Security benefits that extend beyond an individual's lifetime in the form of survivor benefits.

What is the survivor benefit?

Social Security's survivor benefits provide income to families of deceased workers and retirees. Spouses, ex-spouses, and children may be entitled to this benefit. However, eligibility and benefit amounts are conditional. Prior to retirement, it's important to understand what those requirements are and how benefit amounts can be affected. This understanding will help you coordinate claiming strategies so you can structure Social Security benefits in a way that compliments you overall financial plan.

Considerations for pre-retirees

In contrast to spousal benefits, survivor benefits reflect the amount the deceased retiree was receiving when they died. To see the significance of this distinction, compare possible outcomes for a couple considering two different claiming strategies: 

• Strategy A: the working spouse claims at her Full Retirement Age (FRA) and receives $2,000 per month, her non-working spouse's benefit would be $1,000. 
• Strategy B: the working spouse waits until age 70, her benefit with delayed retirement credits would be $2,640 but the spousal benefit would still be $1,000. 

If the working spouse died at age 82.5 (her breakeven age), she would have collected the same total benefits in Strategy A as she would have in Strategy B. So if she was looking to maximize her payout, her claiming decision wouldn't have mattered. But when looking at the family's net payout, the distinction between the strategies rests on how long the surviving spouse lives and collects.

If the working spouse in Strategy A passes first, the survivor benefit would be $2,000. If the working spouse in Strategy B passes first, the survivor benefit would be $2,640 – that's over 24% more than the survivor benefit in the first strategy. This is why breakeven ages can be inadequate and misleading for married couples who are coordinating claiming strategies.

Considerations for survivors

Widows and widowers who aren't eligible for their own retirement benefits have limited options when it comes to their claiming strategies – they can either claim now, or later. But those who are eligible for their own benefits and haven't claimed them yet have more options that can be used to their advantage. 

Bottom line

When it comes to claiming Social Security, there's no definitive strategy or age that will be appropriate in every situation. That's because benefit amounts vary for every individual and what is optimal depends on what it is exactly that the family is trying to achieve. In order to determine what strategy is best for your family's situation, think of Social Security as a piece of your retirement puzzle. A piece that can be worth over $1,000,000 over the course of your retirement. Measure twice, cut once.