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Social Security: To Claim or Not to Claim, That is the Question

Jan Blakeley Holman, CFP, CIMA, ChFC, CDFA, CFS, GFS
Director of Advisor Education
19 Jan 2022
4 min read

We provide a few key considerations that should help you with the answer. Additionally, working with an Advisor can be beneficial for this critical question.

Recently the Washington Post published an article about retirement trends.

According to the Bureau of Labor Statistics (BLS), 3 million people retired during 2020, a number that’s almost double the number that would have been expected given the retirement trends we’d seen before the pandemic. The Social Security Administration reported that retirements among 65- to 69-year-old workers increased by 5%. At the same time the number of retired workers applying for Social Security retirement benefits declined by 5% in the year ending September 2021, the largest drop in 20 years.

Is it possible that the 65-to 69-year-old workers accounted for the drop in the number of individuals applying for Social Security benefits? Unfortunately, it’s impossible to know because that information isn’t tracked by the BLS. Just for fun, let’s say that those 65-to 69-year-old workers are responsible for the drop in individuals claiming Social Security. What would explain the change?

It probably goes unsaid that the past two years bear little resemblance to the past in terms of trends affecting the labor force. Unbelievable as it seems, amid a terrible worldwide pandemic, we’ve also experienced a perfect storm of positive financial events that have benefitted American workers, such as:

  • First, many Americans reaped the rewards from federal stimulus checks and those who became unemployed received larger unemployment payments
  • Second, despite a few hiccups, the stock market has been exceptionally strong
  • Third, in many cases, Americans who’ve sold their homes during the past few years have been rewarded with high prices by the unprecedented demand from home buyers
  • Finally, working from home has changed the cost of employment for Americans who haven’t had to pay to commute, purchase work clothing or cover the cost of meals away from home

These variables may have caused retiring employees to delay claiming their Social Security retirement benefits, allowing their benefits to increase by 8% for every year they go unclaimed between an individual’s full retirement age (FRA) and age 70.

Still, deciding when to claim Social Security can be complicated and there are many variables that determine when Social Security-eligible individuals should collect their benefits. What are some of the variables that might cause an individual to claim Social Security early or wait to claim their benefit?

Why Claim Social Security Early?

If you are eligible for Social Security, you can begin taking a monthly benefit as early as your 62nd birthday or wait until your 70th. During this eight-year window, the age you choose to claim your benefit affects the amount of your monthly payment going forward. The sooner you begin, the lower your lifetime monthly benefit.

You and your advisor may decide that claiming Social Security early makes sense if you:

  • Believe that Social Security is going to go bankrupt
  • Face a current cash flow shortage and need an additional source of income. This may be particularly timely if you suddenly find yourself out of work
  • Believe that your own health issues or family health history indicate you will have a short life expectancy and you want to claim your benefits as early possible
  • Anticipate spending more money in the early years of retirement when you may be more active
  • Are claiming a spousal benefit to meet an immediate financial need
  • Want to preserve your savings and hold on to your investment assets longer to help support your retirement in the future

Why Wait to Claim Social Security?

You and your advisor may determine that claiming your benefit at full retirement age or later makes sense if you:

  • Believe Social Security will remain solvent
  • Like the fact that your monthly benefit increases each month you delay your initial claim
  • Are in good health, have reasons to expect you will live a long life and want to let your monthly Social Security benefit grow
  • Plan to continue working and don’t have an immediate reason to claim your Social Security benefit
  • Plan to continue working, haven’t reached your full retirement age, and don’t want a reduced benefit because you have earned income over the Social Security threshold1
  • Expect your spouse to live longer than you and you want him or her to receive the highest spousal benefit possible. The earlier the higher-earning spouse begins collecting their benefit, the lower the benefit amount that may be passed on to the surviving spouse

Why a program like Social Security is so complicated, escapes me. After all, according to the National Institute for Retirement, Social Security is the only source of retirement income for more than 40% of American retirees today and will affect millions of us in the future. That reality makes it even more important for us to become well versed in the program.

1 When individuals claim Social Security $1 of Social Security benefits are reduced for every $2 of income earned above $18,960. In the year you reach full retirement age, the earnings limit increases to $50,520 and $1 of benefits are deducted for every $3 of income earned above the limit. These thresholds are in effect for 2021. The earnings limit disappears once you reach full retirement age.

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