You should always delay Social Security until age 70, right? Wrong!

There are times when delaying until 70 will result in less lifetime income than claiming early. And that's what we're talking about in today's video.

I'm going to go over four situations where it can make more financial sense to claim Social Security earlier than age 70. But first, let's talk about why delaying until 70 often does make sense.

Why Delaying Social Security Until 70 Often Pays Off

The number one reason is that it provides some protection against what we call longevity risk. Longevity risk is the risk that you live longer than expected but don't have the financial resources for such a long life.

By delaying Social Security until 70, you're going to increase your benefit significantly and that benefit will continue for the rest of your life, no matter how long you live.

While your investments could potentially run out if you live a longer than expected life, Social Security will keep paying. So it's one of the best protections against outliving your savings.

This is particularly important for those who might not have a large nest egg and are concerned about the long-term sustainability of their retirement income.

Another great benefit of delaying Social Security until 70 is that Social Security increases each year by inflation. This means it's protected from inflation risk.

The more of your income you can get protected from inflation, the better. With prices rising over time, having a portion of your income that keeps pace with inflation is extremely valuable.

This can help maintain your purchasing power throughout your retirement so you can afford the same quality of life as the years go by.

When You Shouldn’t Delay: Breakeven Age

Delaying until 70 has the drawback that you don't get any benefits until that age. The benefit is significantly higher, but it's going to take some years after claiming your benefit before you're paid back for all those years of not taking Social Security.

This is what we call the break-even or crossover age. And usually delaying until 70 will have a break-even age somewhere between 80 and 85, depending on the age you claim and your assumed investment returns.

If you don't expect to live until that break-even age, whether it's due to your family history or a personal health situation, then it doesn't make sense to delay. You'd be better off taking Social Security sooner and getting that benefit in those earlier years.

When You Shouldn’t Delay: Lower Earning Spouse

Another reason it can make sense to claim Social Security sooner is in the case of a married couple.

The way Social Security works in the case of a married couple is when one spouse passes away, the surviving spouse will get the higher of their own Social Security benefit or the deceased spouse's Social Security benefit. This makes it more advantageous for the higher earning spouse to delay Social Security until age 70 because that higher benefit is going to continue when either spouse passes away.

Going back to our break-even age, now we're talking about either spouse making it to that break-even age. The chances that one of them makes it are much higher than both of them making it.

Having the higher earning spouse delay Social Security can maximize the survivor benefit, providing greater financial security for the surviving spouse.

But we're talking about cases when you should claim early, and that is relevant for the lower earning spouse. There's less incentive for the lower earning spouse to delay their benefit because delaying will only create more income for the couple while both are still alive.

If one spouse passes away, the surviving spouse will get the higher spouse's benefit and the lower earning spouse's benefit stops.

So often, it makes sense for the lower earning spouse to claim benefits before age 70 because if either spouse passes away, that lower benefit becomes irrelevant moving forward.

When You Shouldn’t Delay: Spousal Benefits

There could be even more reason to claim early if a retiree Social Security benefit is significantly less than their spouses. This is due to spousal benefits.

A retiree can receive up to 50% of their spouse's primary insurance amount, which is the Social Security benefit if claimed at full retirement age, or 67 for most people.

And that 50% number is reduced if the retiree claims their benefit before full retirement age. However, the spousal benefit doesn't increase from age 67 to 70.

So if your benefit is a lot less than your spouse's, such that you're going to receive spousal benefits, then claiming early between 62 and 67 would make more sense.

You would receive your own benefit until your spouse claims their benefit. Then your benefit would increase to the higher spousal benefit.

This allows married couples to optimize their combined benefits for the highest total income.

When You Shouldn’t Delay: You Need The Money

Lastly, it could make sense to claim earlier than 70 if you need the money.

If your investment portfolio can't support your living expenses until 70, then Social Security can fill that gap and it could make sense to claim early.

For some retirees, relying solely on their savings might not be feasible. And in those cases, Social Security provides a reliable source of income that can supplement your portfolio to pay for your living expenses.

With Social Security, every situation is unique, so it's essential to consider your personal circumstances when determining the right strategy for you. If you need help with this decision and want to optimize your Social Security, along with creating a tax-optimized retirement plan, we can help. Schedule a free consultation using the link below.

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