We receive a lot of questions, concerns, and misperceptions about when to file for Social Security. There is the occasional fear that the system will go away (it won’t). Sometimes, advisors say you should maximize your benefit at all costs (usually not). I’ve also heard taking Social Security early results in a penalty. It does not result in a penalty; it simply lowers payments for the opportunity to receive payments at an earlier age. Additionally, very few people understand how spousal and survivor benefits can affect the filing decision for the earning spouse.

With that in mind, I thought sharing a framework and ideas around “when” to file for Social Security retirement benefits would be helpful. Please note that this is a general framework of ideas that we then workshop and discuss before making a filing decision. The final decision is highly reliant on someone’s specific circumstances.

But before we outline the four frameworks, it would be helpful to understand a key tool in the Social Security claiming toolbox - the Social Security Bridge.

Social Security Bridge

First, it may be helpful to provide a brief example of the Social Security Bridge. Let’s say your Social Security full retirement age is 67, and your monthly benefit is $2,500. If you delay filing until age 70, your benefit would be $3,100/mo - a 24% increase! You then have a larger base of guaranteed inflation-adjusted income for the rest of your life that could POTENTIALLY be tax-free.

You just need to figure out how to supplement your income for that delay period from other sources, such as savings or investments. The benefit is higher guaranteed inflation-adjusted income for the rest of your (and your spouse’s) life.

To fund that “Bridge” and delay income period, you can earmark a portion of your portfolio or savings and invest in secure investments like US Treasuries or CDs. If we’re delaying from age 67 to 70, that period is three years.

So, if we build the Bridge for three years at $3,100 per month, the Bridge funding is $111,600 for that period.

Some might say, “Wow, that is a big investment for an extra $600 per month”. It is a big investment, but likely a good one.

If you were to invest that $111,600 in a portfolio, a recent study from Schwab shows that you could take about $500/month and have a high chance of not depleting the portfolio over your lifetime.

Meanwhile, the delayed Social Security benefit would pay an additional $600/month, guaranteed for your and your spouse’s lifetime.

If you and/or your spouse live into your mid-80s, the Social Security Bridge and delay strategy generally works out in your favor.

Situational Social Security Claiming Ideas

Single and limited retirement income sources

Consider delaying benefits until age 70 if you can. This may involve using the Social Security Bridge to replace Social Security income until age 70 at the latest. As demonstrated, the Bridge can be more efficient for generating retirement income than a traditional portfolio especially if you are healthy.

Single and more than adequate retirement income sources

Consider taking benefits “early”. If your health deteriorates at a younger age, you feel fortunate that you received benefits when you could and preserved your assets. If you remain healthy into your late 60s, an “early” filer can always pause their benefits when they reach full retirement age (FRA), which is age 67 for many people. Once you pause at FRA, you can earn delayed retirement credits until age 70 for a larger benefit for the rest of your lifetime.

We used a similar approach for a couple recently where the husband filed for benefits early on his own, but the couple clearly would be better off with the largest Social Security benefit amount possible. We helped him build a 3-year Social Security Bridge so that when he paused benefits at age 67, the couple had secure income during that period. Then at age 70, he filed for Social Security Benefits and started receiving a lot more than he did three years prior.

Married, One-income earner

One of the benefits for a married couple is that the non-earning spouse can receive 50% of the earning spouse's Social Security income. So, if the earning spouse receives a $3,300 monthly benefit, the non-earning spouse could receive $1,650.

The catch is the non-earning spouse cannot receive their benefit until the earning spouse claims their own. So if the earning spouse delays, then the non-earning spouse needs to wait as well. The spousal benefit also does not receive the delayed increases until age 70 as the worker spouse does.

This “lost” income on the spousal benefit increases the cost of the Social Security Bridge, or delaying until age 70. Therefore, it can make sense for the earning spouse to claim Social Security at their FRA so the non-earning spouse may also claim.

There used to be a strategy called “File and Suspend” that allowed the non-earning spouse to receive their 50% benefit while the earning spouse delayed benefits until age 70. However, the Social Security Administration closed this “loophole” in 2015. Sorry!

It is important to note that the end of File and Suspend was not immediate. Those who were age 62 and older in 2015 were still allowed to File and Suspend later. This is an example of a relatively big change in Social Security rules that was phased-in over time and may help alleviate some anxiety about changes to Social Security system in the future.

Married, dual-income earners

This brings us to our fourth and final scenario, a married couple with dual earnings. In these situations, I like to consider an “early and late”, “age-diversified”, or “split” strategy.

Whatever you want to call it, this approach means one spouse will file for benefits early in retirement while the other spouse waits until age 70.

Who files first, and who waits? It depends. Usually, the spouse with the larger benefit waits until age 70, but it could be the older spouse if the benefit amounts are close. Sometimes, the older spouse also has the higher benefit, making this an easy choice.

Aside from running the numbers, there are three reasons why this approach could make sense.

An average 65-year-old couple has a 50% chance of either spouse living until age 92. (American Academy of Actuaries and Society of Actuaries, Actuaries Longevity Illustrator, http://www.longevityillustrator.org/)

Therefore, maximizing the largest Social Security benefit by delaying until age 70 protects not only the couple but also the surviving spouse.
According to the same source, one member of a 65-year-old couple will pass away by age 82, on average. When a spouse passes away, the largest Social Security benefit continues to the surviving spouse while the lower benefit goes away.

Another study found that 52% of women between the ages of 75-84 are widows.

Conceptually, this means we should consider maximizing the number of YEARS for the smaller Social Security benefit while maximizing the AMOUNT for the larger benefit.
Surviving spouses receive a double whammy when it comes to their finances. First, their Social Security may be cut by 30-50% because the lower benefit amount goes away. Pension income may also be cut or eliminated. Second, they move from the Married tax table to the Single tax table and receive a lower standard deduction. This could mean that taxes go up while income goes down for the surviving spouse. I don’t think this is what the IRS or Social Security intended for a surviving spouse, but it can be the case.

Understanding the Social Security Bridge and claiming strategy frameworks are a great place to start as you consider when to file for Social Security. The best Social Security claiming strategy for any individual or couple would involve a deep understanding of their current and long-term financial picture.

If you have questions about your own Social Security options and decisions, Alo Financial Planning is here to help you retire tax-wise, income-smart, and experience-rich.