What to Know Before Claiming Social Security Benefits

By Mark Zagurski, CLU®, ChFC®, CMFC® and CRPC®

If you’re like many Americans nearing retirement, you’re probably planning to use Social Security benefits to help cover basic costs like groceries and utilities and potentially even your bigger lifestyle dreams, such as traveling, pursuing hobbies, and helping family members. Or you may be among those itching to use the benefits to invest and help grow your savings.

Whatever your situation, the reality is that more than 67 million Americans receive Social Security benefits today. Of those, 40% count on it for at least half of their income, while for 14% of beneficiaries, it covers nearly all their income.¹ The Cost of Living Adjustment (COLA) attempts to keep Social Security benefits in line with inflation, helping beneficiaries maintain their purchasing power over time, no matter when they start receiving benefits or how much they get.

Despite being a critical source of inflation-adjusted lifetime income for many, Social Security might not cover all your needs. Here’s why this might be the case for you:

• Rising living costs: Inflation can decrease the buying power of your benefits over time, so having other income is crucial.
• Healthcare expenses: As you get older, medical costs can go up a lot, and Social Security might not be enough to cover these.
• Lifestyle goals: Many retirees aim for financial goals beyond basic living, which requires more than just Social Security.

The bottom line: Social Security is meant to supplement only part of your pre-retirement earnings, usually about 40% for the average worker.² This means you’ll likely need extra savings or income to keep up your standard of living. That’s why it’s important to see how Social Security fits into your overall retirement financial plan by reviewing all income sources like savings, pensions, or investment accounts. A financial professional can help you sort through your income sources and build a holistic financial plan that incorporates your Social Security benefits.

You can use this calculator to estimate how much retirement income Social Security will provide.

Timing is everything

When to claim Social Security benefits is one of the most important decisions you can make as you approach retirement. The debate over timing is intense among professionals and retirees, with an increasing number of individuals advocating for retirees to claim Social Security benefits at age 62.

Yes, that’s the earliest you can start, but that means you will cut your monthly benefit by 30% compared to waiting until you’re 67, which is the full retirement age for those born in 1960 or later. If you wait until 70, your monthly benefit can go up by 24% more than at 67.

Of course, there are circumstances where it might make sense to claim benefits earlier. For instance, if you have health concerns or a shorter life expectancy, it may be advisable to claim benefits before your full retirement benefits kick in.

Deciding when to claim

Be wary of generic advice online about how long you should wait before collecting Social Security benefits. Before you make the timing decision, keep these four things in mind:

• Your personal situation
• The amount of Social Security benefits you can receive
• How those benefits are figured out
• The real value of those benefits

Let’s break them down further, starting with the personal factors.

• Health and life expectancy: If you’re in good health and expect a long life, delaying benefits can increase your monthly payments, offering the potential for financial security over time.
• Marital status and spousal benefits: For married couples, planning is more intricate. You can claim up to 50% of your spouse’s benefits, based on their earnings and when claims are made.⁴ Coordinating strategies can help maximize these benefits, especially survivor benefits, which may allow the surviving spouse to receive up to 100% of their partner’s benefits.
• Balancing work and retirement: You can claim Social Security and still work, but earnings might reduce your benefits and affect taxes. Consider if you’ll continue working after claiming, or if a gradual retirement suits you.

Figuring out the amount

Once you’ve considered these personal factors, the next step is to consider how much you can receive at different ages. That is why it’s key to plan your retirement age. Remember that delaying until age 70 increases your monthly amount by 77% compared to starting at 62.

• Age 62 (Early Benefits): Provides income sooner but could mean lower lifetime benefits if you live longer
• Age 67 (Full Retirement Age): Generally, those born after 1960 reach their full benefit at 67.
• Age 70 (Delayed Benefits): Waiting increases your monthly payment, ideal for those expecting a longer life.

The exact amount you are entitled to receive depends on several factors. You can figure out a baseline primary insurance amount or PIA based on your Average Indexed Monthly Earnings (AIME).⁵ The AIME considers your earnings throughout your career, adjusting for inflation up to age 60, and then averages your 35 highest-earning years, including those after 60.

Here’s why AIME matters: If those 35 years include some low-earning ones compared to what you make now, holding off on claiming can let you include more recent, higher earnings. For example, if by age 62 you only have 34 years of earnings, waiting to claim can add another year of earnings like your average, bumping your AIME up.

You can log in to the Social Security Administration’s website to view your earning history and estimated benefits.

Break-even calculators

Break-even calculators are also useful starting points to determine how much you would receive, but they should never replace personalized advice. The calculators estimate the best age to start claiming based on life expectancy, helping you decide if delaying benefits is advantageous. Typically, the break-even point is around age 78. Living beyond this age may result in higher total benefits from a delayed start.

The calculators have limitations: They typically churn out estimates based on assumptions and may not account for unexpected events like health changes. In other words, there’s no substitute for the personalized guidance of a trusted financial professional.

Final thoughts

Like any personal finance decision, determining when to take Social Security is a deeply personal choice, with no universal rule that applies to everyone. When to claim Social Security benefits can greatly impact your retirement income and peace of mind. Consider your financial resources, work plans, health, and family situation before you decide.

Whatever you do, don’t rely solely on generic advice. Online tools and calculators provide insights, but they can’t account for the nuances of your life. Similarly, the Social Security office provides information but not personalized recommendations.

Consider working with an experienced financial professional who can help you navigate these decisions and maximize your Social Security benefits. They can help you tailor strategies and adjust plans as your life and needs evolve.

Find a financial professional near you

About Mark Zagurski, CLU^®, ChFC^®, CMFC^® and CRPC^®

Mark is a director of strategy and communications at Mutual of Omaha. With more than 30 years of experience, he has worked extensively in advisor development, strategy, and communications, focusing on helping advisors and their clients make informed financial decisions. He is also the host of the Mutual of Omaha Advisors podcast, “Make it Personal,” which explores personal finance and strategies to help you take control of your money and future.

1. AARP, Securing our future: The importance of Social Security, October 2024
2. Social Security Administration, Retirement Ready: Fact Sheet for Workers Ages 18-48, May 2023
3. Barron’s, How to Boost Your Social Security Check by 24%, June 2024
4. U.S. News, How to Maximize Social Security With Spousal Benefits, March 2024
5. Social Security Administration, Social Security Benefit Amounts

Disclosures:

Registered Representatives offer securities through Mutual of Omaha Investor Services, Inc., Member FINRA/SIPC. Investment Advisor Representatives offer advisory services through Mutual of Omaha Investor Services, Inc.  Mutual of Omaha Advisors is a division of Mutual of Omaha Insurance Company.

All investing involves risk, including the possible loss of principal, and there can be no assurance that any investment strategy will be successful.

Mutual of Omaha and its representatives do not provide tax and/or legal advice, and the information provided herein is general in nature and should not be considered tax and/or legal advice.

Not all Mutual of Omaha agents are registered representatives or financial advisors.

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