The Top 10 Social Security Claiming Strategies You Should Consider

Deciding when and how to claim Social Security benefits is a significant financial decision that can greatly impact your retirement income. Utilizing the right social security strategy can help you maximize the amount of money you receive from the government during your lifetime, maximize “guaranteed” survivor income or maximize the opportunity for wealth creation (the growth of your invested assets).  With many potential strategies available, the right choice can help you maximize your government benefits over your lifetime.

1. Delay Claiming Until Age 70

Pros: For each year you delay past your full retirement age (FRA or Age 67 for those born after 1960), your benefit increases by approximately 8% per year due to delayed retirement credits.

Cons: Have to plan to have other income until age 70 and if you die prematurely, you may not receive from the government the same amount you otherwise would have if you collected at an earlier age.

2. Claim Benefits Early at Age 62

Pros: It provides cash flow sooner, which may be necessary for some retirees.

Cons: While this strategy results in a permanently reduced benefit—up to 30% less than if you waited until your FRA. If you are still earning earned income, your benefit will be further reduced until your FRA. 

3. Maximize Survivor Benefits

Married couples can use a strategy that focuses on maximizing survivor benefits. Typically, the higher-earning spouse delays claiming benefits until age 70 to ensure the surviving spouse receives the highest possible amount if the higher earner passes away first. This strategy is especially important when there is a significant age or income disparity between spouses, providing financial protection for the surviving partner.

4. Spousal Benefits Coordination

Example: one spouse might claim benefits as early as age 62, providing immediate income, while the other delays until age 70 to maximize their benefit amount. This approach balances the need for income now with the goal of maximizing total lifetime benefits.

5. Bridge to Medicare (Claim at Age 65)

Retirees who need income but want to avoid the penalty for claiming before their FRA often wait until age 65, when they become eligible for Medicare. This “bridge” strategy allows them to minimize the reduction in benefits associated with early claiming while ensuring they have healthcare coverage through Medicare.

6. Claim Benefits While Working (After Full Retirement Age)

Claiming benefits while continuing to work after reaching FRA can provide additional income without reducing your Social Security benefits. While claiming before your FRA can result in a reduction if your earnings exceed certain limits, after FRA, you can work without any penalty, allowing you to receive full benefits and supplement your income. This also may be an accumulation strategy to save additional retirement assets during those last few working years. 

7. Utilize the Earnings Test to Boost Future Benefits

For those who choose to work and claim benefits before reaching their FRA (age 67 for most), the Social Security earnings test can reduce benefits based on income. However, these reductions are not lost; they are recalculated at FRA and can result in higher monthly payments later. This strategy can be beneficial for retirees who continue to work part-time and do not rely solely on Social Security income.

8. Use Social Security as a Bridge to Delay Distribution of Assets

Some retirees use Social Security benefits as a bridge to delay drawing down other retirement assets, such as IRAs, 401(k), or 457(b) accounts. By claiming Social Security earlier, they can preserve other investment accounts, potentially allowing these assets to continue growing or utilizing strategies to minimize required minimum distributions (RMDs) in the future.

9. Optimize Social Security with Roth Conversions

For retirees who plan to delay Social Security until age 70, using the period between retirement and age 70 to perform Roth IRA conversions can be a tax-efficient strategy. By converting funds to a Roth IRA while in a lower tax bracket, they can reduce taxable income in later years when Social Security benefits and RMDs begin.

10. Consider State Tax Implications

Some states tax Social Security benefits, while others do not. Retirees should consider the state tax implications when deciding when and how to claim Social Security benefits. Moving to a state (or staying in one) that does not tax Social Security or timing the claim to minimize state taxes can result in significant savings over the course of retirement.

The Bottom Line

Selecting the right Social Security claiming strategy involves careful consideration of factors such as health, life expectancy, income needs, and tax implications. While there is no universal answer, understanding these popular strategies can help you make an informed decision that aligns with your retirement goals. Consulting with AWP can provide personalized guidance to ensure you maximize your Social Security benefits and enjoy a secure retirement.

By adopting a thoughtful claiming strategy – and not waiting until the time comes to have a plan, you can enhance your financial well-being and make the most of the benefits you’ve earned throughout your working years.