Q: Many people think that age 70 is the best age to retire and file for social security retirement benefits because they assume they will be collecting the maximum possible benefit since they had waited the longest possible time to collect. While this certainly sounds reasonable, is this actually how it works and are there certain circumstances where waiting to the very end would not be a wise choice?
A: That depends. If somebody has a minimal amount of savings and they need the income to survive; or if they expect to have a short-life expectancy waiting to file at the age of 70 would not be the best strategy. In addition, it is important to understand the multi-dimensional aspects of spousal benefits. Specifically, there are particular benefits that exist for spouses and widows called auxiliary benefits. Filing for Social Security retirement benefits without knowing your options can preclude your spouse from cash benefit as well as precluding yourself from collecting two benefits. Let’s take a look at the following scenario to demonstrate the above principle:
We will look at the retirement situation of husband and wife Mark and Mary. In their situation the husband, Mark, has turned 64 and is the higher earner between the two. The husband’s spouse, Mary, is only 65 but has reached full retirement age. Mark decides to apply early and therefore will receive a reduced benefit but it enables Mary to commence collecting her spousal benefit of 50% of Marks full retirement benefit up through her age 70. At this point, at age 70 Mary can collect her own highest possible retirement benefit.
In this sense, Mark and Mary are essentially collecting two benefits. But in order to facilitate this, Mark had to first file early and receive a reduced benefit amount that enabled Mary to collect her auxiliary spousal benefit on Marks higher earnings. At Marks full retirement age he can suspend his benefits, which will not affect Mary’s spousal benefit on Marks earnings, and then start up his again at age 70 at an inflation adjusted value of an approximate 31% increase in benefits.