I have never met a family that regretted thinking carefully about when to claim Social Security. I have met plenty who wished they had. The decision about when to claim is one of the larger financial choices you will make in the back half of your life. Lots of families treat it like it's just something you do the day you retire. It’s often unhelpful to assume that is the default, not when your personal financial picture is unique. Here are five questions I always work through with clients when making this decision.
Do You Actually Need the Income Right Now?
For someone whose portfolio can cover household expenses in the meantime, the case for delaying is compelling. Social Security benefits increase for every year you delay claiming, from age 62 all the way to age 70. The difference between claiming at 62 and waiting until 70 can be as large as a 76 percent increase in your monthly benefit.
Now, of course, you may have heard the language of “break-even”, because the other variable is how long you will collect Social Security. None of us has the gift of knowing our last day on this earth, so we do look at other factors, such as family medical history, including longevity. It’s an important piece of the puzzle, but it is not the whole puzzle.
How Much of Your Benefit Will Be Taxed?
Unfortunately, many families find this out on their tax return rather than in advance. Social Security benefits can be taxed, and how much depends on your total income in a given year. If you are drawing from pre-tax retirement accounts at the same time, up to 85 percent of your benefit may be treated as ordinary income. Understanding this before you begin claiming allows you to plan around it.
This is really only a fact set you can anticipate with a full picture of your assets and a coordinated plan for how income is being pulled from which sources. I see lots of accidental surprises here. Proactive planning is worth it. Planning is usually more valuable before you turn on Social Security.
What Does Your Portfolio Structure Look Like?
Social Security and required minimum distributions, which begin at age 73, turn on income streams you cannot undo. That means there is often a window between early retirement and the income sources turning on, during which Roth conversions at more favorable rates are possible. The timing of your claim and what you do with your portfolio in the surrounding years are connected decisions. We don't necessarily want to turn on Social Security and miss this window.
What Does This Mean for Your Spouse?
Did you know that when one spouse passes away, the surviving spouse gets the higher of the two benefits for the rest of their life? Let's just say, for a moment, that your spouse earned more income over more years and therefore is eligible for a higher Social Security benefit. If they pass away first, you, as the surviving spouse, continue to receive their higher benefit.
This is why I also ask couples to consider delaying Social Security benefits for the spouse who will receive more. If one spouse lives a considerable number of years longer, there are often also more expensive years for needs like long-term care. Giving them a guaranteed lifetime income that is higher is worth considering.
What Will Your Medicare Premiums Look Like?
Part B and Part D premiums are income-based through a mechanism called IRMAA. If your income in the two years before Medicare enrollment exceeds certain thresholds, you may pay a surcharge that adds thousands of dollars per year to your healthcare costs. How you structure income in those surrounding years can dramatically affect what you pay. One of the most common places I see higher IRMA costs comes from turning on Social Security too early because you didn't realize how it would affect your downstream costs. This is something we actively plan for.
Getting to Your Answer
None of this points to one universal answer. The right approach depends on your health, your income picture, your portfolio structure, and your spouse's situation. What matters is treating this as a deliberate planning conversation rather than a default decision.
If you are within five years of making this call and have not run a detailed analysis, that is the right place to start.
This material is for informational purposes only and should not be construed as tax advice. Please consult a qualified tax professional regarding your specific situation.
All investing involves risk including loss of principal. No strategy assures success or protects against loss.
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