When to Take Social Security: A Breakdown by Marital Status

When shoud a retiree start taking Social Security benefits? Hundreds of thousands of dollars are at stake in the answer, and the smartest path depends on a number of factors — perhaps most importantly, marital status.

Looking at retirement age and marital status, T. Rowe Price released a study that could help advisors choose the best Social Security strategy for their soon-to-retire clients. T. Rowe Price used its Social Security Benefits Evaluator tool to examine the trade-off between taking early Social Security benefits and waiting until the latest possible age, 70, while tapping savings in the meantime.

Surveys have shown that most Americans don't understand their options when it comes to claiming Social Security.

Retirees have two competing goals: maximizing Social Security benefits, which means delaying benefits to age 70, and minimizing savings withdrawals in the early years of retirement, which means taking benefits as early as possible.

"You can't do both," says Christine Fahlund, a senior T. Rowe Price financial planner, in a white paper on the study. "So you should be looking for the best compromise for your situation."

Complicating matters, initial Social Security benefits increase by about 8% (plus inflation) for every year recipients can delay benefits from 62 to 70, meaning benefit checks roughly 75% greater at age 70 than 62. And when a client is married or divorced, another set of benefits and withdrawals gets added to the picture.

Here, according to T. Rowe price, are the best Social Security claiming strategies for clients who are single, divorced or married.

Single

Singles should work full or part time long as possible – at least to 66, if not 70, T. Rowe Price says, in order to delay Social Security benefits and limit savings withdrawals.

"There can be a very heavy price for delaying Social Security in terms of higher early savings withdrawals but, if you can work longer even part time, you may be able to take benefits later and reduce withdrawals before 70," she said. "In the long run, you'd be less likely to run out of savings, and your Social Security benefits would be larger."

Divorced

Retirees who are divorced after at least 10 years of marriage (and a two-year waiting period) can take a spousal benefit, as long as they have not remarried. The divorced could delay their own benefits from 66 to 70 by taking the spousal benefit for four years starting at 66, which would then lower their pre-70 savings withdrawals.

"Many who are divorced don't seem to know about this benefit — thinking it's only for married couples," Fahlund said. "Both ex-spouses, if single, can simultaneously get this benefit, unlike with married couples who can't get the spousal benefit at the same time."

The paper explained that "when the divorced are 66 — Social Security's full retirement age (FRA) — their spousal benefit is equal to one-half of the ex-spouse's benefit at the FRA. The ex-spouse has to be at least 62 but does not have to have begun receiving his or her own Social Security benefits."

Married

The study looked at three strategies for married retirees. First, both partners taking benefits at 62. Of the three strategies, this resulted in the lowest pre-70 savings withdrawals but the lowest lifetime Social Security benefits.

Another option is a "split" strategy: the lower-earning spouse takes Social Security at 62 and the higher earner takes spousal benefits at 66 and then his or her benefits at 70. The study showed doing this increased lifetime Social Security benefits by more than $340,000 over the "early" strategy and reduced lifetime withdrawals by the same amount

At the opposite end, the "maximize" strategy assumed both spouses waited until 70 to start taking their own Social Security benefits and the lower earner started taking spousal benefits at age 66, which resulted in about the same Social Security benefits as the split strategy but more pre-70 savings withdrawals.

The married case studies assumed a couple three years apart in age, with the older spouse living to age 83 and the younger to 95.

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Related on ThinkAdvisor: Claiming Social Security at 70 Can Cost You: T. Rowe Study