A No-No for High Earners: Overlooking the Optimal Timing for Claiming Social Security

The maximum monthly Social Security benefits for 2022, and why the timing of claiming benefits is important for everyone.

As high earners approach retirement, too many overlook the importance of claiming social security benefits at the optimal time. A number of personal reasons or assumptions are to blame for the blasé attitude. The most common is the perception that the claiming decision won’t make a difference in their finances. Another is a misguided assumption that the social security system will become insolvent.

Maximum Monthly Social Security Benefits for 2022

Optimal Social Security ClaimingThe highest monthly amount a person can receive in 2022 is $50,328 for those who deferred to age 70 and contributed the maximum possible into the system. For spouses who were both maximum contributors, that amount doubles to a total benefit of $100,656 per year.

To illustrate further, here are the maximum monthly benefits for 2022:

  • $2,364 per month when filing early at 62
  • $3,345 per month when filing at full retirement age (in 2022, for those born in 1955 or 1956)
  • $4,194 per month if there was a deferral to claim at age 70

These numbers are for individuals whose earnings were equal or greater than the maximum income on which Social Security taxes were paid (for at least 35 years of their working life).

The Long-Term Impact of Maximizing Social Security Benefits

Based on the numbers above, the additional benefit received between claiming early at 62 and deferring to age 70 is currently $1,830 per month or $21,960 per year. Now double that to $43,920 annually if the spouse was also a high earner who qualifies for the maximum monthly benefit. There aren’t many wealthy families that will scoff at $43,920 per year in additional annual retirement income that would allow them, at the very least, to make larger charitable gifts or add to an estate. Everyone pays into the system for decades; the return should be maximized.

Granted, this illustration doesn’t account for the 8 years during which the early claimant receives benefits at the lower amount before age 70. But what if that early claimant lives to be 85, 90, 95, or 100 in an age of increasing longevity—and without the annual cost of living adjustment on the higher amount?

Analyzing the Social Security Decision Within a Broader Retirement Plan

The decision about when to claim Social Security for maximum benefit can be complex. Many factors are not addressed in the numbers above, and everyone’s situation is unique and requires a distinct solution.

We highly recommend a modern analysis of your Social Security claiming strategy using software that automatically computes your range of options based on current Social Security Administration statement(s). It should be integrated within a broader retirement income plan that accounts for the efficient use of all assets and sources of income over the course of a remaining lifetime. This is especially true if you’re married or have a unique situation that is covered by other facets of current Social Security policy, such as having minor children, or a disability issue.

Additional Social Security Claiming Considerations

Here are a few additional points that may increase your appreciation of the importance of right timing the Social Security decision:

  • Social Security benefits include an annual cost of living adjustment (COLA) for inflation. In an era of high inflation, this has a profound impact on growing retirement income (COLAs are not currently available in the annuity marketplace). For example, in 2022, Social Security benefits increased by 5.9% as a result of 2021 inflation. The 2023 COLA adjustment based on 2022 inflation has potential to be even higher!
  • When a higher-earning spouse on social security dies, the surviving spouse “inherits” that higher social security benefit as a “survivor’s benefit.” In a majority of cases, the surviving spouse is a female with a longer life expectancy. As a result, when making the claiming decision about whether to defer to age 70 to receive the higher long-term benefit, the decision should be based upon the longevity and lifetime income planning for both marital partners—the claimant and the surviving spouse.

Social Security is just one element of building a retirement plan. For most Americans, it’s the most important decision to get right. Even for high earners and wealthy families, the claiming strategy is nothing to take lightly. As shown, the inflation-adjusted long-term benefit can vary greatly as a result of this one decision—but the impact will last a lifetime (two lifetimes in the case of a married couple) in an age of increasing longevity.

Many additional details apply to Social Security claiming strategies and I welcome your questions and feedback: my contact information.

– Josh Weller, AIF®

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.

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