There are reasons not to wait for larger payouts when you’re older.
Many people decide to claim their Social Security retirement benefits at age 62—or when they stop working, if they’re older than 62. According to recent Social Security statistics, 70% of the 42.4 million retired workers receive reduced benefits because of taking them before their full retirement age.
Earlier this year, I wrote about the decision on when to claim Social Security in two columns: Weighing the Social Security Benefit Decision and Can You Count on Social Security? Although it’s common to point out why it might make sense to delay taking Social Security benefits, there are legitimate reasons some people claim their benefits sooner rather than later.
The biggest one is because if not claiming your benefit means you won’t be able to afford to retire. By all means, don’t sacrifice your financial security early in retirement in hopes of a larger payout later. Do your calculations carefully, though. Although your Social Security benefit along with your federal retirement benefit might provide adequate income, remember that you also should have Thrift Savings Plan investments. They could bridge the gap between when you retire and when you start collecting Social Security. You might decide that by taking larger payments from your TSP for a few years, you can reduce the withdrawals when the time arrives to claim Social Security.
Additionally, Social Security benefits are a little more tax-friendly than withdrawals from your traditional retirement savings, so delaying Social Security and increasing the payout from your retirement savings a little between 62 and 70 could pay off in lower tax bills in your later years.
Another legitimate reason to claim early is to allow family members to receive benefits based on your work record. Your spouse or child could receive a monthly payment of up to half of your full retirement benefit amount if they qualify. If your spouse doesn’t have an earned Social Security benefit of their own, or if their benefit is smaller than half of yours, this may be a consideration when it comes to claiming.
According to Social Security, of the 25 million women aged 65 or older who were receiving benefits as of December 2017, 13.3 million (52.5%) were entitled solely to a retired-worker benefit. About 6.7 million (26.5%) were dually entitled to a retired-worker benefit and a wife's or widow's benefit, and about 5.3 million (21%) were receiving wife's or widow's benefits only. According to recent statistics, 2.9 million children under 18 received benefits, including 337,000 children of retired workers.
Payments to your family will not decrease your retirement benefit. In fact, the value of the benefits your family may receive, added to your own, may help you decide if taking your benefits sooner may be more advantageous.
If you are a widow or a former spouse, you can also explore benefits that your deceased spouse or ex-spouse has earned for you. In some cases, you may be able to claim these benefits based on their work record and delay the benefit that you’ve earned for yourself.
If you’re eligible for retirement benefits (but haven't applied yet) and also eligible for widow’s benefits, you can apply for retirement or survivors benefits now and switch to the other (higher) benefit later.
For those already receiving retirement benefits, you can only apply for benefits as a widow or widower if the retirement benefit you receive is less than the benefits you would receive as a survivor.
If you became entitled to retirement benefits less than 12 months ago, you may be able to withdraw your retirement application and apply for survivor benefits only. If you do that, you can reapply for the retirement benefits later when they will be higher.
If you were born before Jan. 2, 1954 and have already reached full retirement age, you can choose to receive only your current or divorced spouse’s benefit and delay claiming your own retirement benefit. If you were born later than that, the option to take only one benefit at full retirement age is no longer available. If you file for one benefit, you will be effectively filing for all retirement or spousal benefits. The amount of benefits you receive as a divorced spouse has no effect on the amount of benefits your ex-spouse or their current spouse can receive.