Claim Social Security early? Here’s Who Could Regret More Than You | Smart Switch: Personal Finance

(Dan Caplinger)

Tens of millions of people depend on Social Security for financial support in retirement. After a long career, it’s comforting to know that you can receive money from Social Security starting at age 62.

Many people base their decisions about when to claim Social Security on their own personal needs. In particular, if you have health problems, it often makes sense from a strictly individual standpoint to claim Social Security as soon as you can in order to get at least some benefits from the program. However, if you are married and your spouse does not have a work history to match yours, filing early could have the unintended consequence of leaving behind a source of regret and financial challenges for your spouse after his or her death.

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Why do so many people file Social Security early?

It is well known that Social Security offers different payments depending on when you claim benefits. At full retirement age, which is 67 for those born in 1960 or later, you can expect to receive your basic benefit.

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You can claim starting at age 62, but you’ll get 30% less than your full retirement amount. You can also wait until you turn 70 and get a 24% increase in your monthly payments. That makes the benefit at age 70 77% higher than the benefit at age 62.

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If you think you’re going to live a long time, then giving up eight years of benefits to make each monthly payment bigger may make a lot of sense. But if you’re in doubt that you’ll make it to 70, claiming early seems like the smart move.

Why your spouse might regret their mistake

The problem, however, is that your own retirement benefits aren’t necessarily the only thing to think about. Your spouse is entitled to claim survivor benefits after your spouse’s death, and the amount of the survivor benefit is based on several factors. One is when you wife decide to claim those survivor benefits. As with their own retirement benefits, a spouse who claims survivor benefits earlier will get less per month than someone who waits until full retirement age.

But another factor in determining survivor benefits is the amount you your they were receiving before his death. If he claimed Social Security for himself at age 62, his reduced benefit would be the starting point from which his spouse’s survivor benefits would be calculated. In contrast, if he waited until age 70, that increased benefit would become the baseline. The result is also a potential 77% variance in survivor benefits.

how can this work

It’s easier to see the impact an early decision can have on a spouse through an example. Let’s say you’re married and age 62 and would be entitled to typical retirement benefits of $1,500 per month at full retirement age of 67. However, due to a medical condition, he does not expect to live to the age of 67. His spouse is also 62 and in good health.

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Your first instinct might be to claim Social Security right away. That way, he would get up to five years of Social Security. The benefit would drop to $1,050 a month, but that’s still as much as $63,000 that she wouldn’t have received otherwise.

However, doing so would also secure your spouse’s maximum survivor benefit of $1,050 per month. could be even less if the time of your death resulted in your spouse claiming benefits before the spouse’s full retirement age.

Conversely, if you waited to claim, or even never did, then your spouse would be entitled to a survivor benefit based on the full amount of $1,500. There would still be a reduction if the survivor claimed before full retirement age, but it would be based on that much higher number of $1,500.

In the end, your spouse will likely get $450 per month less until your death. If you died at age 67 and your spouse lived to age 90, then during that 23-year period, the amount lost would be $124,200 in today’s dollars, nearly double what you would have received if you claimed early.

a difficult decision

Choosing when to receive Social Security is difficult because you can’t predict the future. However, before you take the money ahead of time, be sure to think about the potential impact on your spouse. It could change your mind about what is the best option for your family.

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