Most Americans, it pains me to say, make the wrong decisions about claiming Social Security benefits.
That can cost them $100,000 or more of lifetime benefits and can increase financial struggles in their later years.
It doesn’t have to be that way for you. Making Social Security claiming decisions the right way ensures you make the best choices for you and your family.
You receive your full retirement benefit (FRB) at your full retirement age (FRA), which varies with your year of birth.
For people considering claiming now, FRA is at least age 66. You can claim Social Security retirement benefits as early as age 62, but you’ll receive only about 75% of your FRB.
For every 12 months you wait to claim past full retirement age, you receive an 8% increase.
There are no increases for waiting past age 70.
Most people don’t wait until full retirement age to claim their benefits. Instead, in 2018, 35% claimed their benefits at age 62, and 25% at full retirement age.
Only 13% waited until age 67 or later. Usually, 5% or fewer wait to age 70 to claim benefits.
Research shows that most people who’ve been retired for a while say one change they’d make is to delay their claims for Social Security retirement benefits.
Other research indicates people claim benefits early because they don’t have good information or because of the way the decision is framed, or described, to them.
Keep in mind that the retirement claiming decision isn’t the only Social Security decision many people will have.
In married couples, after one spouse passes away the other must decide between claiming his or her own retirement benefits or survivor’s benefits.
In addition, surviving spouses have unique options.
They can choose one benefit and later switch to the other benefit when it is higher, as I explain in my most recent book, “Where’s My Money: Secrets to Getting the Most out of Your Social Security.”
I believe the first step in making good Social Security decisions is to have the right information, especially the right financial projections.
There are a lot of variables, so making reasonably accurate projections isn’t easy.
Fortunately, low-cost computer programs are available that do the job very well. I’ve worked with two programs: Maximize My Social Security, which I’ll call Maximize and Social Security Solutions, which I’ll call Solutions.
Each is available for less than $50.
I ran the data for my wife, Elaine, and I to see what the results would be in different scenarios.
The programs are easy to use and set up.
I found Maximize a little easier, because it has a feature that allowed me to open a “My Social Security” account on the Social Security website and then copy and paste our actual earnings histories into the program.
With Solutions, I had to enter the data, which is still not a time-consuming or difficult process.
The programs automatically run the data and recommend the best time for you to claim retirement benefits.
In married couples, the best claiming date for each spouse to maximize the couple’s lifetime benefits is given.
The programs display the estimated total lifetime benefits of each claiming strategy and the dollar difference of various strategies.
For us, the programs recommended the same claiming strategy to maximize lifetime benefits.
They differed a little in the amount of dollars the strategy would pay over our lifetimes and in the dollar advantage it had over other strategies.
But the amounts were similar, and the recommended strategies were the same.
For most married couples, the programs will recommend that the higher-earning spouse waits until age 70 to claim benefits.
They also determine whether the lower-earning spouse should claim benefits early or wait until full retirement age or later.
The programs can be particularly handy when a surviving spouse, especially one between ages 60 and 70, must choose between retirement benefits and survivor’s benefits and whether to switch from one to another in the future.
They also can be very helpful to someone who might be eligible for ex-spouse benefits or has had more than one marriage and might be eligible for benefits from different deceased or divorced spouses.
An important feature of both programs is that you can change assumptions.
Each program uses default assumptions to make its projections and clearly states those assumptions. The assumptions can include inflation, life expectancy of each spouse, future earnings and more.
But you can change the assumptions to determine the results in different scenarios. For example, there might be good reasons to assume one spouse will live less than average life expectancy.
The opposite also might be true. You can see what happens if not just one but both spouses live well beyond life expectancy.
You also can examine the effects of strategies such as suspending benefits after full retirement age after you’ve been receiving them for a while.
The programs don’t do everything. Some people want to claim benefits early and assume they’ll invest the benefits for years before actually spending them.
There’s no mechanism to assume an investment return on early benefits and compare that to waiting to claim benefits.
Another strategy not covered is taking benefits early to reduce debts. Overall, I found these two calculators to be better than the many free calculators available online.
Keep in mind that Social Security also offers a robust calculator on its website for those who open and log in to a “My Social Security” account.
Adding the Social Security calculator gives you three low-cost ways to project Social Security benefits under different scenarios.
One key to remember is that Social Security is longevity insurance.
It is there to ensure you have an income in case you live a long time, and your other resources are spent down or lose their purchasing power due to inflation, market declines or other events.
Delaying Social Security also is a form of low-cost life insurance to protect the surviving spouse, whichever spouse it is.
After one spouse passes away, one benefit will stop coming into the household.
Most people who contemplate that scenario should want the benefit to the surviving spouse to be as high as it could be.
You also shouldn’t claim Social Security early simply because it’s available and seems like free money.
You give up more free money by claiming early, because the benefit increases 8% tax-free each year you delay it through age 70.
In my book, I cite studies that found a nest egg often lasts years longer when a person delays claiming Social Security benefits, even if that means spending more from other retirement savings to delay Social Security.
About 96% of Americans make less than optimal decisions about claiming Social Security benefits, according to a study a couple of years ago by financial services firm United Capital.
You can avoid making a sub-optimal decision by obtaining better information and making a careful review of the results under different scenarios.
Know all your claiming options, which you can learn from my book (I’ll show you how you can get a free copy in an upcoming issue).
Then, use one or more of these programs to run the numbers to compare the results of your choices.
The programs and the time it takes to use them are a small cost compared to the additional lifetime income you and your family will receive from the optimal strategy.
Finally, focus on the long term. The best decision for the long term that will make your nest egg last the longest often isn’t the most appealing short-term decision.