When shoud a retiree start taking Social Security benefits? Hundreds of thousands of dollars are at stake in the answer, and the smartest path depends on a number of factors — perhaps most importantly, marital status.
Looking at retirement age and marital status, T. Rowe Price released a study that could help advisors choose the best Social Security strategy for their soon-to-retire clients. T. Rowe Price used its Social Security Benefits Evaluator tool to examine the trade-off between taking early Social Security benefits and waiting until the latest possible age, 70, while tapping savings in the meantime.
Surveys have shown that most Americans don’t understand their options when it comes to claiming Social Security.
Retirees have two competing goals: maximizing Social Security benefits, which means delaying benefits to age 70, and minimizing savings withdrawals in the early years of retirement, which means taking benefits as early as possible.
“You can’t do both,” says Christine Fahlund, a senior T. Rowe Price financial planner, in a white paper on the study. “So you should be looking for the best compromise for your situation.”
Complicating matters, initial Social Security benefits increase by about 8% (plus inflation) for every year recipients can delay benefits from 62 to 70, meaning benefit checks roughly 75% greater at age 70 than 62. And when a client is married or divorced, another set of benefits and withdrawals gets added to the picture.
Here, according to T. Rowe price, are the best Social Security claiming strategies for clients who are single, divorced or married.
Singles should work full or part time long as possible – at least to 66, if not 70, T. Rowe Price says, in order to delay Social Security benefits and limit savings withdrawals.
“There can be a very heavy price for delaying Social Security in terms of higher early savings withdrawals but, if you can work longer even part time, you may be able to take benefits later and reduce withdrawals before 70,” she said. “In the long run, you’d be less likely to run out of savings, and your Social Security benefits would be larger.”