Making Your Best Bet on Social Security

Almost everyone needs to decide when to claim their Social Security retirement benefit between age 62 and 70. The only exception would be those claiming disability benefits or benefits based on the death of a spouse, former spouse, or a parent. Everyone else has the same eight-year window to figure out whether to take a reduced benefit as early as age 62, a full benefit at full retirement age (between 65 and 67 depending on year of birth), or to delay receiving a benefit until as late as age 70 to receive a permanent increase in the amount.

Some people agonize over this decision, but it all comes down to calculated risk. With Social Security, the risks of filing early or delaying until age 70 revolve around life expectancy, such as your overall health and genetic makeup. If you’re married, you also need to factor in the age and health of your spouse if she or he might receive a widow’s benefit based on your benefit amount.

Other factors also will play into your decision, such as how much money you need to support your retirement lifestyle and whether someone else might benefit from your Social Security while you are living. That could include dependent children or a spouse eligible to receive benefits on your work record. And of course, whether or not you’re still working is a factor. There’s a limit on earned income until you reach your full retirement age.

According to the Social Security Administration, 40 percent of men and 47 percent of women claim benefits at age 62. Only 25 percent of people claim their benefit at the full retirement age or later.

Free online calculators can help you evaluate your Social Security claiming options. Earlier this month, SSA released a report comparing several such tools:

• SSA’s Retirement Estimator
• The  Consumer Financial Protection Board's Planning for Retirement tool
• Target Your Retirement from the Center for Retirement Research at Boston College
• AARP’s Social Security Benefits Calculator
• Financial Engines' Social Security Retirement Calculator
• Bankrate's Social Security Calculator

The Financial Engines calculator allowed for one- or two-person households, making it  helpful for couples. AARP’s calculator also took into consideration a working spouse and non-working spouse’s information, which would be helpful to couples trying to assess their situation. The Boston College calculator factored in more than just Social Security benefits, giving users a more holistic view of their retirement finances. Social Security’s own estimator has the advantage of having access to the user’s actual Social Security earnings history — so its estimates should be very accurate. The CFPB and AARP calculators were noted for their ease of use.

The report pointed out that it’s important to know the source of the information that you’re using. Tools from government, nonprofit, and academic organizations generally provide guidance in a neutral manner. Those offered by for-profit companies also have educational value, but may be affected by the companies’ interest in selling financial advice or individualized retirement planning products.

The Social Security decision boils down to a matter of receiving a smaller benefit for a longer period or a larger benefit for a shorter period. So you also may want to use SSA’s life expectancy calculator as you ponder your decision. The good news is whenever you claim your benefit, you’ll receive it for the rest of your life, regardless of the state of the overall economy or the stock market.

Photo: 401kCalculator.org