Good to Know: Six Key Factors in Choosing When to Claim Social Security Retirement Benefits

Good to Know

We discussed Social Security claiming age coaching opportunities for savvy Financial Advisors in our last blog. Now we will provide added insights into six key factors that should influence the claiming age decision.

A lifetime of careful retirement planning can be undermined with the wrong Social Security claiming age choice. Yet a less-than-ideal retirement planning effort can be vastly improved by choosing the right claiming age. Interestingly, the claiming age decision is fully within your client’s control and should contemplate these factors at a minimum:

  • Life expectancy and breakeven age,
  • Fixed income market rates of return,
  • Cost of living adjustments,
  • Available cash flow,
  • Survivorship benefits, and
  • Coordinating spousal claiming ages.

Next, we will summarize key elements of each of these factors.

Life Expectancy and Breakeven Age

The Social Security Administration designs the early retirement, normal retirement, and delayed retirement benefit payments to have approximately equal net present values based upon an average life expectancy of 85 years (males) to 87 years (females). Caveat – averages can be misleading. For example, a healthy 65-year-old with no serious illness who exercises twice a week is expected to live until 91 (male) or 93 (female). Here are the implications for clients:

Poor Age 62 (early)

Age 65 to 67
(normal retirement age)


Age 70
(latest delayed claiming age)

It is mathematically possible to calculate a breakeven age that balances the expected return from future higher benefits against the cost of giving up benefits until age 70. Although the calculation is beyond the scope for this blog, a number of analysts estimate it takes about 16 years to break even. For example, a client waiting until age 70 to claim benefits would generally have to live until approximately age 86 to break even. Delayed claiming may be prudent for a client in good health, but an unwise choice for a client in poor health.

Fixed Income Markets Rates of Return

A client earns a permanent increase (delayed credit) for every year claiming is delayed from his or her normal retirement age until age 70. The delayed credits of up to 8% per year were established during a period of near historic highs in fixed income rates of return. The simple question to ask here is, “Will I earn a greater return by taking reduced benefits early and investing the proceeds or will my return be greater if I wait until 70 to claim and collect?”

Even if your client has sufficient positive cash flow to invest his or her Social Security Retirement benefits beginning at age 62, it’s tough to beat an 8% annual fixed income return guaranteed by the U.S. Government. As an added plus, Social Security Retirement benefits are wholly or partially excluded from total gross income on the taxpayer’s tax return, depending upon the level of a taxpayer’s combined income.1

1 Combined income is total gross income excluding Social Security Benefits plus tax-free income (e.g., municipal tax interest) plus one-half of Social Security benefits received.

Cost of Living Adjustments (COLAs)

The case for delayed claiming becomes even stronger when annual cost-of-living adjustments (COLAs) are considered. COLAs are adjustments to benefits to account for inflation and they apply for every year past age 62. For those waiting until age 70 to claim, 8 years in COLAs will be added to the retirement benefit. In 2020, those clients claiming at age 70 would receive a cumulative increase of over 12% to the annual retirement benefit based upon the annual COLAs over the preceding 8 years.

Cash Flows – Getting Real

The advantages of delayed claiming until age 70 may seem unattainable if your client simply must have cash flow from Social Security retirement before age 70. This challenge may be addressed with techniques to bridge the income gap, such as:

  • Work full-time another few years if able
  • Work part-time
  • Annuitize the cash value in a life insurance policy
  • Downsize the residence to generate income tax-free retirement capital
  • Temporarily increase distributions from retirement plans or IRAs
  • Take out a reverse mortgage

Careful analysis with a CFP® Professional or other retirement planning financial expert is needed before adopting any of these techniques.

Survivorship Benefits

Here is how to add $20,000 or more annually to a surviving spouse’s Social Security benefit. This may be particularly beneficial if the surviving spouse did not work outside of the home or earned significantly less than the decedent spouse. The strategy is for the higher earning client to delay claiming retirement benefits until age 70. The reasons follow:

  • Delayed retirement credits serve to increase not only the client’s retirement benefit while alive, but also survivorship benefits for his or her spouse.
  • The surviving spouse (of full retirement age or older) receives 100% of the retirement benefit that was being paid to the deceased spouse at his or her death.

Coordinating Spousal Claiming Ages

Claiming age decisions become more complex when planning for a married couple. The best decision will be based upon factors such as the health, age, and average earnings of each spouse. The scope of this blog does not permit us to summarize the dozens of combinations of these factors. Nonetheless, the following example may help clients understand a basic scenario.

  • Your clients are named Jill and Jack. They have both reached their respective normal retirement age. At this age, Jill’s retirement benefit based upon her own record of average earnings (record) is $3,000 monthly and Jack’s is $1,000 per month based upon his record.
  • When Jack claims retirement benefits, he is entitled to the greater of his own benefit ($1,000/month) or a spousal benefit of 50% of Jill’s benefit.
  • Jack will receive $1,500 monthly because of the spousal benefit.

Planning Tip – The postponement of benefits until age 70 is the downside of waiting until age 70 to claim. However, a married client born before January 2,1954, can generally avoid this downside, literally having his or her cake and eating it too. Such a client can earn delayed claiming credits of up to 8% annually on their own record until age 70 while simultaneously receiving spousal benefits until age 70 on their spouse’s record.


The information presented herein is provided purely for educational purposes and to raise awareness of these issues; it is not meant to provide and should not be used to provide legal or financial advice to clients. There are variations, alternatives, and exceptions to this material that could not be covered within the scope of this blog.