When Should Your Client Claim Social Security? 6 Questions to Ask

Deciding when to claim Social Security will have a permanent impact on the benefit a client receives, and for that reason, financial planning experts often call the act of claiming the single most important financial choice many people will make in their lifetime. Research from the National Bureau of Economic Research shows the claiming stakes are indeed high, as optimizing the timing can produce more than a 10% increase in the typical worker's lifetime spending capacity. More than nine in 10 should wait till age 70 for optimal claiming, according to the NBER, though there are also cases where earlier claiming makes sense, according to a client's wealth outlook and long-term financial goals. According to J.P. Morgan Asset Management's recently published 2023 Guide to Retirement, the decision-making framework around Social Security claiming has never been as complex as it is today. One's full retirement age (FRA), which is a key metric used to determine whether a person's benefit will be discounted or augmented, varies depending on when they were born. For example, those born in 1954 or earlier have a full retirement age of 66, and this age increases marginally for each additional year through a birth date in 1960, when the full retirement age tops out at 67. In other words, in 2017, the FRA began transitioning from 66 to 67 by adding two months each year for six years, and as a result, early claiming decisions will result in more of a benefit reduction. J.P. Morgan's report posits that few Americans fully understand the benefits and trade-offs related to claiming Social Security at various ages. Generally, delaying benefits results in a much higher benefit amount. Waiting to age 70 results in a 24% to 32% bigger benefit check than if a person claims at their FRA. Likewise, taking benefits early will permanently lower the benefit amount. At age 62, beneficiaries will receive only 70% to 75% of what they would get if they waited until their FRA. As such, it is a crucial part of the retirement planning process for financial advisors and their clients to talk through these dynamics. While there is no such thing as a perfect claiming strategy, making sound decisions can position clients for a much more stable and satisfying retirement. See the following slideshow for a list of questions that can help financial advisors and their clients navigate the challenge of Social Security claiming, drawn from the latest Guide to Retirement. (Image: Chris Nicholls/ALM)