The Big Social Security Question: When?

When we’re far from retirement, Social Security seems so simple: You pay your taxes during your working years, and when you stop working, you receive a stream of income.

But as you get closer to actually retiring, Social Security begins to look about as simple as a Rubik’s Cube. That’s because a dizzying combination of factors play into the decision—including your health status, life expectancy, marital status and earning potential. The possible outcomes based on these factors can be mind-boggling.

When to take Social Security is an important question because your benefits may account for significant portion of your retirement income. Those over age 65 rely on Social Security for 38.2% of their income on average, according to the Employee Benefits Research Institute.

In 2013, the maximum monthly Social Security payment at “full retirement age”—currently 66—was $2,533. But you can choose to begin drawing benefits as early as age 62 or as late as age 70.

If you take benefits as early as possible, they’ll be reduced by about 25% per month. If you wait until age 70, you’ll receive 32% more each month than you would at the full retirement age. Whenever you set the payments in motion, you’ll receive the same amount (adjusted for inflation) for life—so it’s not a decision to be taken lightly.

Another consideration has to do with your desired standard of living. Waiting to take Social Security may strain your quality of life right now, but taking it too early may mean less money each month into the future.

Throw into the mix your life expectancy: If there is a chance you will die relatively young, then waiting to collect larger benefits may be pointless. Does deferring Social Security mean you need to continue working at a job you dislike? Such intangibles factor into the discussion as well.

And we haven’t even addressed how spouses alter the equation. Couples must take into account spousal and survivor benefits. Beneficiaries’ spouses who do not work, or who earn less than their partner, are entitled to 50% of the higher-earning spouse’s benefits once both parties are 66.

On the other hand, lower-earning spouses may opt to claim their own full benefits if they exceed the 50% spousal benefit—provided that their partners first file their own claims.

When a spouse of full retirement age dies, the surviving spouse may claim either 100% of their deceased partners’ benefits, or they may claim their own benefits; they cannot claim both.

Then there’s the “file-and-suspend-claim” strategy. The higher earner files a claim as early as age 66—opening the door for the partner to claim spousal benefits—and then suspends the original claim. Once the higher earner suspends benefits, those benefits continue to grow until age 70. At that point, the spouse may change course, claiming their own maximum retirement benefit at age 70.

Understandably, the complexities of Social Security timing can prove paralyzing for some. And paralysis isn’t a good place to be when it comes to important financial decisions. This is precisely where a financial advisor can help: By untangling the variables and presenting you with clear recommendations, they can empower you to act with confidence. If you have questions about Social Security, please don’t hesitate to get in touch with us.

Bijan Golkar is a Certified Financial Planner™ and licensed tax preparer with FPC Investment Advisory, Inc., in the San Francisco Bay Area. He provides wealth management services for high-net-worth individuals and families.