With the exception of only the top income quintile, Social Security is the largest source of retirement income for all Americans.
While many retirees also heavily rely on their investments to provide income, they face a challenge in balancing their personal savings against Social Security benefits.
The problem is that retirees have two goals that often compete:
Obtain the highest Social Security benefits and, if married, the highest benefits for the surviving spouse. This generally entails delaying benefits, ideally to the latest possible age of 70.
Minimize savings withdrawals in the early years of retirement, particularly before 70. This generally entails taking benefits as early as possible.
However, since it is difficult for those who retire before age 70 to do both, investors should be looking for the best compromise for their situation.
Even for middle-income retirees, the outcomes can vary by hundreds of thousands of dollars. The free T. Rowe Price Social Security Benefits Evaluator tool (troweprice.com/socialsecurity) can help preretirees choose their strategy. Using that tool, a T. Rowe Price study examined some of the trade-offs involved, which depend on retirees’ marital status.