When to Tap Social Security: The Sometimes Surprising Answer From Online Calculators

 When to Tap Social Security: The Sometimes Surprising Answer From Online Calculators

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One of the most complicated and consequential decisions in retirement—when to start collecting Social Security—has been transformed by online calculators.

The conventional wisdom says that you should wait to claim benefits as long as possible, to maximize your payments. But one size doesn’t fit all, and people’s circumstances are often different than the standard assumptions about expected lifespan and career plans.

That’s where these calculators are useful. Put in your age and your spouse’s age, as well as information from your Social Security statement, and the calculators will tell you when you should each begin benefits to get the most money over your lifetimes.

And, most important, you can easily adjust the numbers based on your individual situation and see what you stand to gain or lose. If you think there’s information that the formulas aren’t taking into account, plug in a different number. For instance, you know if people in your families are short-lived or long-lived—but the algorithms don’t. The difference between what you get and what the calculator gives you originally can be striking.

There are a number of calculators to choose from. Some are free, such as Open Social Security, and some charge a fee, like Social Security Solutions or Maximize My Social Security.

Whichever one you choose, play with the assumptions to make it fit your circumstances. That is what we’ve done with three imaginary family situations below, using the calculator from Open Social Security, with values for December 2020. We picked it because it was free, and it allows you to easily change claiming dates to see the impact.

In each case, the couple adjusted the numbers to fit their own situation—and realized the conventional wisdom didn’t quite make sense.

Couple No. 1

A husband and wife plan to retire together at age 62. Each will get $36,000 a year from Social Security if they wait until their full retirement ages of 67 to start benefits. However, they plan to start benefits immediately and so will each receive $25,350 a year, or a total of $50,700.

What the calculator recommends

One spouse should file for benefits at age 65 and five months and get $32,200 a year. The other spouse should wait until age 70 to file and receive $44,640. Together, the couple will collect $76,840 a year at age 70, about 52% more than they would by both claiming at age 62.

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When one of them dies, the survivor will receive the higher of the two checks, or $44,460, for the rest of his or her life. By contrast, if they both retire at age 62, the survivor will receive only $29,700.

The calculator estimates the couple will receive 12.5% more value by following its recommendation than by both retiring at age 62.

What the couple ends up doing

The couple decides that one of them should hold off collecting benefits until age 70 to maximize the survivor benefit. But they plan to travel in their early 60s, and they would like at least one Social Security check to help cover costs. By studying the calculator, they notice they still will achieve 99.6% of the optimal strategy if the other spouse starts collecting Social Security immediately. So that is what they do.

Couple No. 2

A 63-year-old man is married to a 38-year-old man. The older man plans to start collecting Social Security when he reaches his full retirement age of 66 and six months and will receive $30,000 a year. The younger man is projected to receive $12,000 a year in Social Security benefits at age 67.

What the calculator recommends

The older man, the higher earner, should wait until age 70 to start benefits, when he will collect $38,400 a year. Because of their age difference, it is unlikely they will simultaneously collect Social Security for a long period. Thus, the young man should begin Social Security at 62 and one month, when he will receive $10,413 if his husband is still alive.

After one of them dies, the survivor will receive $38,400.

What the couple ends up doing

The older man doesn’t think he can continue working until 70. So, he compromises and delays collecting retirement to 68 and a half. That increases his benefit to $34,800. It is less than the $38,400 he would receive by waiting all the way to 70 but is more than the $30,000 he would receive by drawing benefits at 66 and six months. The calculator estimates this compromise has a lifetime value 4.8% below the optimal strategy.

Couple No. 3

A 60-year-old woman has just retired and plans to collect Social Security at her full retirement age, 67, which means a benefit of $24,000 a year. Her 64-year-old husband stayed home for most of their marriage to care for their 40-year-old son, who is disabled, so the husband didn’t work long enough to qualify for Social Security. The woman has saved up enough money to cover them until she begins collecting benefits.

What the calculator recommends

The woman should file for Social Security at age 62 and one month. Her husband should file for child in-care spousal benefit at that time, and her son should file for a benefit because he is disabled. The woman will receive $16,900, and her husband and the disabled child will each get $9,761.

This is one of the rare instances where the calculator recommends the main earner claim Social Security early. The reason is that neither the son nor the husband can begin collecting benefits until the woman begins drawing Social Security.

What the couple ends up doing

The woman comes from a family where the women routinely live well into their 90s. If she lives this long, she wants to have plenty of money to support herself and her disabled son.

So, she adjusts the calculator so that it assumes she will die at age 95, 10 years longer than the mortality tables used in its default setting.

That changes everything. With the longer age, the calculator now tells her she should begin drawing benefits at age 70 to maximize the money Social Security gives her family, even though it means delaying benefits for her husband and her disabled son until then.

The woman doesn’t have enough money to wait until 70. But she does have enough to wait until age 67, her original plan. Delaying five years beyond the computer’s original recommendation boosts her family’s yearly benefit by $7,100 a year for the rest of her life.

With the assumption that she will live so long, the calculator estimates that retiring at age 67 will produce almost 2.4% in additional lifetime benefits for the family than retiring at age 62 and one month. And the lifetime benefits will only be 1.7% less than if she retired at 70.

In this case, the woman has longevity information the calculator doesn’t, and it makes all the difference.

Mr. Templin is a former reporter and editor for The Wall Street Journal who lives in New Jersey. He can be reached at reports@wsj.com.