Decide when to claim Social Security by answering this 1 question

You can claim Social Security anytime between your 62nd and 70th birthday. That is a period of eight years or about 2,900 days. It can be overwhelming to pick the right day or month to apply for your retirement benefit within that long period of time.

Fortunately, there is one factor that should carry the most weight in your decision about Social Security timing. It’s a bit morbid, but here’s the question to ask yourself: how long do you expect to live?

How Your Longevity Affects Your Social Security

If you claim social security earlier, you will receive a lower benefit but an income in advance. If you apply for social assistance benefit later, you will skip the first years of your benefit for a higher income later. You can quantify the trade-off of deferring Social Security by calculating your break-even age.

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Break-even age is when the higher benefit you get from deferring Social Security offsets the upfront income you didn’t receive.

Here’s a simplified example. Let’s say today at age 62 you can collect Social Security and receive $1,050 monthly. Or you can wait until you’re 67 for a $1,500 monthly benefit. Choose to wait and you’ll lose $63,000 in income — that’s five years of the $1,050 monthly benefit.

To find your breakeven age, divide $63,000 by the benefit increase associated with waiting. In our example, that’s $450. The answer is the number of months it takes the higher benefit to “pay” for the skipped income. In this case it is 140 months or almost 12 years. Add 12 to the claim age of 67 and your breakeven age is about 79.

Lifespan puts your break-even age into context. If you are in poor health and may not be celebrating your 79th birthday, delaying Social Security until 67 will likely get you a lower cumulative benefit. On the other hand, if you come from a long line of centenarians, you can earn a lot more from Social Security by waiting.

How Your Longevity Affects Your Savings

Your savings balance is another factor to consider when deciding on Social Security timing. After all, you don’t want to be dependent on your Social Security income alone.

The big question is: how do you know when you have enough money to retire?

In general, you can expect your retirement account to last 30 years or more if you withdraw 4% annually, plus adjustments for inflation. This is known as the 4% rule and it applies if you invest at least 50% in stocks.

That 30-year timeline puts you in your 90s, assuming you retire in your 60s. Again, your estimated lifespan adds important context. If you don’t expect to live to be 90, you can take your chances with a slightly higher withdrawal rate. Know that the longevity of your savings depends on unpredictable factors, including future inflation and the future health of the financial markets.

Here’s what it comes down to:

  • Ideally, you can live comfortably on 4% of your savings plus Social Security. You can then claim your pension benefit and enjoy the money when it suits you.
  • If your savings plus Social Security aren’t enough, but you expect to live for decades, it makes sense to delay your retirement benefits.
  • If your savings plus Social Security aren’t enough and you expect a shorter lifespan, downsizing may be your best option. Lower your cost of living, claim Social Security and celebrate your retirement.

How do you estimate your lifespan?

So, how do you estimate your longevity? The usual process is to first look at the average life expectancy for your age, gender, and race. Then adjust the average based on your health, family history, and lifestyle.

There are many free life expectancy calculators online that go through this analysis. As a rule, do not provide personally identifiable information to these programs. You share information about yourself to get a life expectancy number, but the calculator doesn’t need your date of birth, mother’s maiden name, or social security number.

Claim Social Security on your timeline

While life expectancy estimates are not an exact science, they do provide useful context for financial planning. That context is particularly relevant to your Social Security timing strategy. You can and should do breakeven analysis to claim now versus later, but your breakeven age makes more sense when you compare it to your lifespan.

It also helps to know what income your savings will bring to determine if you need to apply for a higher benefit later on. And the disposable income of your savings is also somewhat dependent on how long you will live.

So, ask the morbid question. Yes, it’s depressing to think about your end of the day, but think about it this way: you’re just accumulating a data point that helps you make the most of your final years.

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