When Should You Claim Social Security?

William Suplee |

Deciding whether to claim Social Security is one of the harder decisions facing people contemplating retirement. You have to consider your health and longevity, the penalties and bonuses for various Social Security strategies and whether or not the current form of Social Security will remain unchanged over the next 20 to 40 years.

When it comes to delaying Social Security, your benefits go up 8% per year by every year you wait past normal retirement age. This is an extremely generous rate of return and for people with lots of expected  longevity, this can be one of the best investments you can make. On the other hand, if you’re not in good health or you have shorter life expectancies in your family, you should take the money much sooner, maybe even as soon as possible to maximize your lifetime benefits.

You can see in the following chart by J.P. Morgan Asset Management that waiting to age seventy can make your monthly payment go up substantially from an early retirement. The question remains what happens if the government changes the Social Security formulas and how they are paid out in the future. This has already occurred several times and a rational person might expect it to occur again as we approach the point where the Social Security trust fund is no longer fully funded in approximately nine years.