It seems like deciding when to take Social Security should be a no-brainer, but if that's your conclusion, you're making an expensive retirement planning mistake.
Choosing the right time to file for Social Security can make hundreds of thousands of dollars' worth of difference in your retirement income.
Recently, there have been a sprinkling of new, free tools designed to help people decide the best time to file. One of the most interesting of them, Social Security Benefits Evaluator, was introduced Thursday by investment management firm T. Rowe Price.
Unlike the AARP Social Security Benefits Calculator, which is also free, the T. Rowe Price tool allows you to easily see the total accumulated difference in dollars generated by various strategies. It makes it obvious that one size doesn't fit all.
About 70 percent of people take Social Security at the first opportunity -- when they are 62. While that might seem like the right strategy, Christine Fahlund, senior financial planner for T. Rowe Price, says the intuitive choice is often the wrong one.
For instance, Fahlund says that when faced with the illness of the higher-earning spouse -- usually the husband -- many couples rush to file for Social Security benefits immediately so the ill spouse can collect as much as he can. That's a mistake, she believes, because the surviving spouse will be entitled to the higher-earning spouse's benefit at the time he claimed. If he doesn't claim, the surviving spouse gets the amount he would have gotten at the time of his death. By filing at the beginning of his illness, they lock in a lower benefit than the surviving spouse would otherwise have gotten had they delayed filing.
The T. Rowe Price calculator allows its users to vary their retirement planning goals and Social Security strategies to see the impact of different decisions. Fahlund recommends that people pay special attention to the cash flow tool on the vertical bar graph.
"You'll see what a tiny part of cash flow those first years are. It feels like a lot of years to wait, but when you see how many bars are coming after age 66 (full retirement age), you realize that the 60s are just the tip of the iceberg for most couples," she says.