It's a conundrum faced by millions of Americans as they approach retirement: how to make the most of Social Security. Here, two Schwab experts break down clients' top questions.
Does it always make sense to wait as long as possible to collect?
"In general, if you're in good health and your financial situation can tolerate it, we believe it makes the most sense to wait until at least your full retirement age [FRA] to start taking Social Security," says Rob Williams, managing director of financial planning and wealth management at the Schwab Center for Financial Research.
"You can receive a reduced benefit as early as age 62, but that means smaller payouts for life. Waiting until your FRA—between 66 and 67, depending on your birth year—entitles you to your full benefit, and delaying further gives you an 8% annual bump until age 70.
"Although your age, health, marital status, income, retirement savings, and other factors all play a role in the decision, your Social Security benefit will last as long as you live—and increase annually with inflation. That's difficult, if not impossible, to replicate with other forms of fixed income."
How can my spouse and I work together to maximize our benefits?
"There are several strategies, depending on your income needs and work histories," explains Chris Kawashima, CFP®, director of financial planning at the Schwab Center for Financial Research. "For example, if one of you earns significantly more income than the other, delaying the higher earner's Social Security could mean a bigger payout down the road—and the surviving spouse will continue to receive the higher of the two benefits after the first spouse dies.
"If you need Social Security income sooner rather than later, the lower earner could start collecting earlier, allowing the higher earner to delay. Once the higher earner files for Social Security, the lower earner may be eligible to upgrade their own payment if their FRA benefit is less than the full spousal benefit."
I want to continue working in retirement to stay engaged and feel useful. Will that affect my benefit?
"Only if you start collecting Social Security before your FRA," Rob says. "If you're younger than the FRA for all of 2025, your benefit will be reduced by $1 for every $2 you earn above $23,400. If you reach your FRA in 2025, your benefit will be reduced by $1 for every $3 you earn above $62,160 until your birthday month.
"However, once you reach your FRA, your monthly benefit will increase to account for those months in which benefits were withheld, and future benefits will not be reduced if you continue to work. So, a temporarily reduced benefit is probably not reason enough to avoid working in retirement."
I've heard Social Security is running out of money. Should I collect early, just in case?
"There's been a lot of press about a potential shortfall in the Social Security Trust Funds around 2035," Rob says. "However, even if the trust funds run out of money, the Social Security trustees estimate about 83% of benefits would still be funded, and that's only if Congress doesn't do anything to address the situation—say, by raising the payroll tax, the ceiling on earnings subject to Social Security taxes, or the retirement age.
"In other words, don't be tempted to collect early in order to 'get while the getting's good,' so to speak. You should base your decision on your needs, goals, savings, and expected longevity, not on a distant possibility that may or may not come to pass."
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The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.
All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness, or reliability cannot be guaranteed.
Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.
The information and content provided herein is general in nature and is for informational purposes only. It is not intended, and should not be construed, as a specific recommendation, individualized tax, legal, or investment advice. Tax laws are subject to change, either prospectively or retroactively. Where specific advice is necessary or appropriate, individuals should contact their own professional tax and investment advisors or other professionals (CPA, Financial Planner, Investment Manager) to help answer questions about specific situations or needs prior to taking any action based upon this information.
The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.