Conventional wisdom says that workers should hold off as long as possible before claiming their Social Security benefits. Every month they hold off until they reach age 70 means a fatter monthly check over the long term.
But now, experts and some sophisticated seniors are looking deeper into the finer points of the program and finding other strategies that can optimize retirees' benefits. Researchers at Boston College’s Center for Retirement Research, for example, have devised a number of strategies according to which retirees can share spousal benefits, refund, and then restart their benefits, or claim and defer their monthly checks. All of these strategies are aimed at improving the bottom line—"winning" the Social Security game, so to speak. "Planning for Social Security is like an investment decision," says Robert Carlson, a Fairfax, Va., financial adviser and editor of the Retirement Watch newsletter. "You really need an individualized analysis and to see the specific numbers to decide which [approach] gives you the biggest payoff."
Today, the full retirement age for claiming Social Security benefits is 66. Anyone can start taking benefits at 62, but those who do will get a monthly benefit that is 25 percent lower than what the full benefit would have been at 66. Waiting longer than 66 increases the benefit by 8 percent a year. (Workers can find their own expected benefits at the Social Security Administration's Web site.) By the most simplistic analysis, anyone who expects to live beyond their early 80s typically would maximize benefits by deferring the start date.
But other factors affect that decision as well. The average age at which recipients first claimed their benefits in 2008 was 63 years and 6 months, only slightly higher than the all-time low recorded in 2006, of 63 years and 4 months. Not everyone who stops working before 66 can afford to defer benefits until the full retirement age. "Some people will take the money as quickly as they can because they are worried that Social Security will disappear and there will be no benefits," says Frank Todisco, a senior pension expert with the American Academy of Actuaries. "But that is a distorted view. There are financial shortfalls predicted, but the program is not going to disappear. The key financial risk for recipients is the longevity risk, the risk of living too long." Retirees who start collecting smaller benefits earlier may be able to insure their end-of-life cash needs by buying a deferred annuity or long-term-care policy with some of their monthy benefits.
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