To Claim Early Or To Claim Later, That Is The Question.

With all due respect to “The Bard” this question is on the minds of many as to the time to claim Social Security. Individual benefits can now approach up to $60K/year. Whether the benefits make any difference in lifestyle is not the question. Rather “I paid in and I’m owed my benefits”. Let’s look at what happens if the claim for Social Security is accelerated or decelerated. 

Claiming Early: What Is Early? 

Based on birth year, anything before the ages below is early: 

Claiming early is usually a bad deal. It will permanently reduce the benefit a claimant receives on their own record and can “punish” with a reduction in any future available spousal benefits. The formula is complicated with a 30% maximum but here are some resulting numbers.  

• Example: A $3,000 normal retirement benefit would be reduced to $2,100 if claimed early. In addition, there will be a roughly 35% reduction in later claimed spousal benefits. This means that a 50% spousal benefit of $1,500 would be reduced to only $975. To add to the mix, up to 85% of Social Security benefits can be subject to federal income taxes. 

• Double whammy: A reduction in benefits with taxes on top of that. Claiming early as a surviving spouse can also reduce survivor benefits. 

There are limitations as to what can be earned (W-2 wages or self-employment income) before the normal retirement age (above), or else there is a reduction in the Social Security benefit. Social Security recoups a $1 reduction for every $2 over the income earning limit. This earnings limitation is $22,320 for 2024. In the year of retirement, the earnings limit does not apply to the period before reaching full retirement age.  

• Reminder: The earnings limit does not include interest income, dividends, capital gains, retirement plan distributions, alimony, etc. It only includes earned income. 

Claiming early may make sense when there is the opportunity to claim your own benefit and later switch to a higher spousal benefit when there is a desperate need for funds, serious illness, or reduced life expectancy.   

Claiming later: What Is Later? 

There is never a reason to wait until after 70, as the 8% “bonus” per year from the normal retirement age stops at age 70. Again, with a strong past earnings history, this benefit can be almost $60,000/year!  

• Bonus: a larger benefit becomes a larger dollar amount when COLA adjustments are made. 

As younger seniors approach retirement, they will not have the same opportunity for the same percentage bonus (see age chart above). For example, being born in 1954 can result in 8% for 4 years or a 32% increase. However, being born in 1959, the bonus is only about 25%. 

Any delay does not increase the spousal benefit; it is based on the normal retirement age benefit. However, a surviving spouse’s benefit is equal to the decedent’s benefit, so the delay does carry over in this situation, potentially providing more income. 

Affairs Of The Heart: Committed Couples 

For unmarried but committed senior couples: To remarry or not to remarry; that is another question. We are not addressing matters of the heart, just financial aspects of Social Security. 

There are various categories addressed here: divorced, surviving spouse, and divorced surviving spouse.  

Some highlights of the rules: 

• • Retirees ALWAYS get their own work history-based benefit if larger than any other options. 

• • Never-married couples who wed may ultimately each get the larger of their own benefit or a spousal benefit after certain conditions are met. 

• • Benefits related to divorce are NOT affected if the former spouse remarries. 

• • In some cases, the spousal benefit is recalculated based on the earnings of the highest-earning spouse from all prior and current marriages. If the new marriage ends, the clock could be restarted on the former marriage. 

• • Divorced from a marriage of less than 10 years at time of remarriage – the benefits being received will end.   

• • Divorced from marriage of at least 10 years and remarry after 60 – benefits continue. 

• • Surviving spouse – benefits end if remarry before 60. 

• • Surviving spouse – benefits continue if marry after age 60 and at 62 or later, your benefit could be based on the new spouse’s history; if higher. 

• • Divorced widow(er) or widow(er) – benefits based on former spouse: after 10 years of prior marriage and over 60 at time of remarriage the benefits will not end.   

• • A note for planning timing of a divorce: watch the 10-year mark!  

• • Also, ex must be of age to collect Social Security benefits, even if not claiming yet. 

Additional Items To Consider 

• • Do you have 40 quarters of coverage of your own work history? Can you now get $7,000 of wages or self-employment income in a year for an additional 4 quarters of credit? 

• • Can your larger earnings now replace some lower earning years in the past 35 years? 

• • Should one spouse claim earlier while the other spouse waits and their benefit grows? 

• • My Social Security online access now requires the use of ID.me or Login.gov for new accounts or old accounts set up before 9/18/21. 

There are so many rules, and we’ve only touched on some of the most common for seniors. We are here to help you or your loved one figure out your options, whether it’s when to claim or the effects of remarriage.