Waiting to start Social Security has a key advantage: the longer you delay, the higher your Social Security paycheck will be over time.

But there are cases when it could make sense not to delay, contrary to popular opinion. Let’s explore this topic, and a few scenarios where it makes sense to start Social Security as early as possible–or at least not waiting until your full retirement age.

The Benefits of Waiting to Claim Social Security Beyond Age 62

Let's quickly summarize the main advantage of waiting to claim your Social Security benefit. Anyone who has received sufficient Social Security credits over time can claim their earned benefit as early as age 62. This will result in a lower benefit than if you had waited until your full retirement age, but it is allowed.

With each month you delay claiming your Social Security your benefit will incrementally increase, to the tune of about 8% per year, even beyond your full retirement age (67 for most retirees) until the age of 70.

Example: Mark and Debbie are married and the same age. Mark decides to start receiving his Social Security at age 67, and Debbie starts hers at age 62. Based on Mark and Debbie’s earning history, if they both delay receiving their Social Security benefit until the age of 70, rather than following their current strategy, their lifetime cumulative benefit would increase nearly $500,000, assuming they both lived until age 90.

The gray bars in the chart illustrate the payments if Mark and Debbie do not delay, while the blue bars illustrate the impact of delaying. Keep in mind also, that this assumes Debbie invests her early Social Security payments and earns a reasonable rate of return.

Clearly in this scenario, delaying Social Security can make a lot of sense! But we’ve made several assumptions for Mark and Debbie, not the least of which is that they’ll both live until age 90 which results in a large benefit payoff. Indeed, the longer you live, the more it can make sense to delay starting Social Security.

Let’s now explore a few situations where claiming an early Social Security benefit may be the right thing to do.

You and Your Spouse Will Probably Die Earlier Than Is Typical

I hate to sound too morbid, but I’ve had conversations with individuals about Social Security where the husband or wife has essentially said, “Look Tim, I understand the benefits of delaying Social Security, but my health is poor and my family’s health history is even worse. It’s pretty unlikely that I’ll live past 70 or 75.”

In this case, I would first explore the likely longevity of the other spouse. How is their health and family health history? Are they in poor health as well? We would also explore whether this person’s spouse has their own smaller, earned benefit that they can start sooner.

If both spouses aren’t expected to live very long, I’m more inclined to recommend this person to go ahead and start their benefit as early as age 62.

But remember, you need to look at Social Security not as an individual benefit, but as a family benefit. If the higher earning spouse delays their benefit for longer but passes away early, the deceased spouse’s benefit now becomes the benefit of the surviving spouse for as long as they’re alive. If that surviving spouse lives a long time, this could still work out best for this family.

Claiming your Social Security benefit while still working can also trigger the earnings test and a subsequent penalty in the amount of benefit received for a time.

Cash Flow Needs

There are also cases where a couple doesn’t have sufficient cash flow to meet their needs, and starting Social Security is the only way to address it.

Example: Mark has been the sole income earner for their family as a Wyoming town administrator. Debbie has stayed home to raise their four children. Mark is already receiving his Wyoming Retirement System pension, but they have no other retirement savings and need some extra cash flow to make ends meet, and Debbie cannot receive her spousal benefit (one half of Mark’s) until Mark starts his benefit AND reaches his full retirement age of 67.

This situation is not ideal, but it may be best for Mark and Debbie to start his benefit early. As an alternative, If Mark is able to work he could consider finding part-time employment as a cash buffer, allowing him to delay receiving his benefit.

The Lowest Earner in a Two-Earner Household Should Start at 62

As I mentioned previously, for a married couple, Social Security planning isn’t an individual affair, it’s a family affair, since the strategy executed affects the entire couple’s future cash flow and wealth, even if one spouse outlives the other.

While it usually makes sense for the highest Social Security earner to delay their benefit as long as possible, it also makes sense for the lowest earner to claim their benefit as early as possible. This “staggered” approach brings the cash flow from the lower benefit to the family sooner, and delays (and grows) the higher benefit for as long as possible. The lower benefit is started early because delaying will have less financial impact than delaying the higher benefit only, on a dollar for dollar basis.

Should I Start Early for Fear of Social Security Running Out of Funds?

I’ve had lots of conversations with people worried about the fate of Social Security, and no doubt these concerns can lead some retirees to start their Social Security benefit as soon as possible. “It’s gonna run out, so get whatever money out while you can!” is the common sentiment.

While concerns are justified and adjustments to the program will have to happen in the next ten years, I don’t think the Social Security program is going anywhere, or that benefits will significantly decline anytime soon.

Why? In short because, for better or worse, too many people are reliant on it. Originally created to supplement retirement income up to about 40%, I see plenty of cases where Social Security makes up 60, 70, or even 80% of household income. The average net worth of US households, removing one's home as a non-liquid asset, are well under $100,000. Eliminating Social Security or drastically reducing benefits would be catastrophic to many.

In my article titled “Is There a Fix for Social Security?” I explore several adjustments to Social Security that can be made to restore its long-term solvency.

Planning Implications for Wyoming Residents

While Social Security benefits are often subject to federal income tax, fortunately only nine states tax Social Security benefits, and Wyoming is not one of them. With high property tax values and increased inflation, it’s nice to be able to keep more of your Social Security dollars!

Will property taxes continue to rise, or will adjustments be made to Wyoming law to keep these taxes under control? This remains to be seen, and retirees may be tempted to claim their benefit sooner if property taxes keep climbing.

How does the longevity of Wyoming families compare to other states? Life expectancy in Wyoming is pretty average, with current US life expectancy at 77 years. Interestingly, in most cases the “breakeven” age of when it makes sense for the highest earner to delay claiming their benefit is around age 80 or 81. Thus, it’s extra important to take your own health history into account before deciding to claim sooner, or later.