When waiting for Social Security isn’t the most lucrative

January 14, 2014, 8:12 PM UTC

FORTUNE — Would you leave $180,000 on the table? How about $323,000? No, I’m not smoking anything. And I’m not kidding either. Those are the average amounts forsaken by singles and couples respectively who take Social Security at age 62 rather than waiting (until age 70 for singles, among couples ages vary) — as about three-quarters of Americans do.

Granted, there are some people who can’t wait. They need money to put food on the table. There are others who shouldn’t wait. They have shorter life expectancies that make tapping the well earlier a smart financial move. But for just about everyone else — particularly people like the educated, fairly affluent readers of Fortune.com — diving in early is a huge mistake. Why? “Because the numbers go north from there,” says William Meyer, founder of Social Security Solutions, a company that provides tools and education to help people figure out when to claim Social Security.

Take this example (which is as simple as Meyer and I could come up with) of a married couple, both 62 years old. At full retirement age (which is 66 or 67 depending on when you were born) the woman will have $2,400 in monthly benefits and the man $2,300. If they both filed today, they’d each get 75% of that amount ($1,800 for her, a little less for him), and that number would ratchet up by an estimated average 2.8% annually, the expected cost of living increase. It would be a bum deal.

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In an optimal world, they live off their earnings and savings until age 66. At that point the wife (because she is the higher earner) files for Social Security but immediately suspends her benefits — meaning she doesn’t take them. The fact that she has filed, though, allows her husband (the lower earner) to receive spousal benefits tied to his wife’s. In other words, he starts getting a monthly check. His own benefits, though, can continue to grow, as do hers. When both turn 70, they get not just 100% of the amount they would have received at age 66, but 132% of it ($3,168 for her, $3,036 for him) despite the fact that they’ve already been receiving some support for four years. Their bottom line benefit according to Meyer: $565,336 more than they would have received if they’d gone the early route — assuming, they live, as projected, to 85 (him) and 90 (her).

If your head is spinning, let me say, I don’t blame you. (I had to make several calls back to my sources on this column to make sure I was explaining it correctly.) Once you factor in not just spousal benefits, but also survivor’s benefits, it turns out there are over 70,000 different scenarios by which you might take Social Security.

One important point: The longer you live, the longer your savings have to last. The worry about running out of money in retirement is huge. One poll conducted by Allianz Life Insurance showed three in five people age 44 to 75 are more afraid of depleting their assets than they are of dying. Getting more in Social Security means you’ll have to spend less of your savings over the years, giving your savings time for continued growth. Coordinating when you begin your Social Security with the spend-down of your other assets can mean your portfolio lasts years longer. So getting the most you can makes sense.

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That said, deciding when to start benefits isn’t easy. But there are, says Retirement Educator Andy Landis, author of Social Security: The Inside Story, some basic rules of thumb.

  • None of these creative strategies work until you reach age 66. You have to be full-retirement age to start suspending, delaying, etc. If you have to tap your benefits before then, you’re out of luck.
  • 80 is the magic age. Tapping Social Security early means more smaller payouts over your lifetime. Waiting means fewer bigger ones. If you’re single, you have to live past 80 for waiting until age 70 to make sense. If you’re a couple, as long as you believe one of you will live past 80, you want the higher earner to delay as long as possible.
  • If you’re single and expecting to have a normal life expectancy: Delay. “Then, you’ll need a bridge to get you to age 70,” Landis says. Ideally, that’s a job. But it can also be retirement income from other sources, like a 401(k). So many of us have been taught to never touch our principal. In the scenario where you’re touching some of your principal so that your Social Security benefits can grow by 8% a year guaranteed, it can be the smart move.
  • If you’re married and one spouse earns significantly more than the other (or the second spouse doesn’t earn at all): Maximize the higher earner’s Social Security to the greatest degree possible. “That way, if I pass away, my surviving spouse gets 100% of whatever I was getting.” This can be important to the survivor late in life when other assets may be running low.
  • If you’re married with two high earners relatively close in age: As in the example above, the higher earner files and suspends. The lower earner draws spouse payments. And the couple uses that money to bridge them until age 70.

And if you’re married with two relatively high earners, but there’s an age difference. Well, it gets even more complicated. That’s the boat my husband and I will be in. So as we near the appropriate ages, we will head to socialsecuritysolutions.com. There, for no charge you can run your numbers and figure out how much you’re leaving on the table. For $20 or $50 you can buy a report that will show you how to do better. And for $125 you can get someone on the phone to walk you through it. (There are, I should note, other quality free tools including: from AARP and T. Rowe Price. Several services including maximizemysocialsecurity.com and socialsecuritychoices.com offer individual computations for a fee as well.)

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