When to Apply for Social Security Benefits

Jay Gershman |

With the demise of guaranteed pensions, and in light of the risks you face in managing your own retirement assets, maximizing Social Security becomes a critical part of retirement planning.

One of the most important decisions a retiree faces is when to apply for Social Security benefits. This is not a decision to be made lightly; the lifetime, inflation-adjusted income promised by Social Security makes it one of a retiree’s most significant assets.

If you were to calculate the present value of the Social Security income stream, it would rival or exceed the lump sum many people have in their 401(k) plans at retirement. Serious investors work hard to maximize the value of their IRAs and 401(k) plans, often not realizing that their Social Security “asset” can be maximized as well. Pre-retirees can enhance its value by building a strong earnings record and applying for benefits at the optimal time.

Let’s say you have a primary insurance amount (PIA) of $2,500. This is the amount of monthly income you will receive if you apply for Social Security at your full retirement age. Full retirement age is 66 for baby boomers born between 1943 and 1954. Let’s also say you have a life expectancy of 86. This is slightly longer than the average life expectancy, but there’s a good chance you or your surviving spouse will live at least that long.

If you apply for Social Security at 62, your benefit will be reduced to account for those four extra years of checks. If your PIA is $2,500, then their permanent benefit would be $1,875, which is 75% of $2,500. If you apply for benefits at 70, then your benefit will get a boost of four years of 8% annual delayed credits, giving you a permanent benefit of $3,300 a month.

Now let’s see what the lifetime value of your Social Security income stream would be depending on when you start your benefit.

Lifetime value of social security benefit

Age at application

Monthly benefit in today’s dollars

Total income received by age 86, not counting inflation adjustments

Apply at age 62

($2,500 x 75%)

($1,875 x 288 months)

Apply at age 66


($2,500 x 240 months)

Apply at age 70

($2,500 x 132%)

($3,300 x 192 months)

Source: Social Security Administration, author’s calculations

The key to maximizing your Social Security “asset” is to understand the lifetime value of the income stream.  One may be tempted to take $1,875 per month at 62 rather than waiting until age 70 to receive $3,300 per month. But if you consider the lifetime value of your benefits, assuming a realistic life expectancy, you will see that claiming the higher benefit at 70 will give you more total benefits over the course of a lifetime. Just as you seek to maximize the value of your IRAs and 401(k)s, you can also maximize the value of your Social Security. This is achieved by locking in your highest benefit by claiming it at age 70.

Spousal and survivor benefits

When the combined benefits for a married couple are taken into consideration, the analysis becomes more complex. You must take into account each spouse’s age, their combined life expectancies, the benefit based on each spouse’s own earnings record, the spousal benefit for each spouse, and the amount the surviving spouse would receive after one spouse dies.

For example, it may be possible for one to receive a spousal benefit starting at age 66 while his or her own benefit builds delayed credits to age 70. Let’s say both spouses are of the same age; each have a PIA of $2,500. At full retirement age, one spouse can file and suspend while the other spouse files a restricted application for the spousal benefit. This would give one spouse a monthly income of $1,250 (50% of $2,500) for four years, from age 66 to 70, giving the couple $60,000 in additional benefits ($1,250 x 48 months = $60,000).

Another consideration is the Social Security survivor benefit. If the higher-earning spouse dies first, the lower-earning spouse will jump up to that higher benefit. If the higher-earning spouse had maximized his or her benefit by claiming it at 70, this will give the widow(er) more income. This is why we nearly always recommend that higher-earning spouses claim their benefit at 70. This will maximize their retirement benefit while they are alive and the survivor benefit for widow(er)s after their death.

But everyone’s situation is different. That’s why we tailor our claiming analysis to the the needs of each individual client and work to ensure that they understand both their potential monthly income as well as the amount of Social Security they stand to receive over their lifetimes based on their claiming ages.