When to begin collecting Social Security is one of the more complicated questions people face as they near retirement.
Full retirement age (FRA) for Social Security benefits is currently between 66 and 67, depending on when you were born. Benefits are determined based on your 35 highest years of earning, and if you file at FRA, you’ll get your full monthly benefit. But if you file either before your FRA or if you delay filing, your benefit will be higher or lower depending on when you file.
For each year you delay past your FRA, your benefit increases by 8 percent until you reach 70 years old. Conversely, the earliest you can file is age 62, so for each month before FRA you file, your benefits decrease. For example, if you begin benefits at 62 when your FRA is 67, your monthly benefit will be about 30 percent lower. Despite this haircut, 62 is the most common age people elect to claim Social Security (often because they are not in a position to wait).
Determining when you should begin Social Security benefits is an important decision with lasting consequences. You want to make a choice that’s in your long-term best interest. In many cases, it’s advisable to wait to receive the larger benefit, but everyone’s circumstances are different. To work through the options, it’s best to talk with a qualified financial advisor to determine what’s best for you. Here are some factors to consider when making that decision.
Delaying your benefits. Many people choose to delay their benefits. While you give up the immediate income from your FRA, the higher payout later often means you will come out ahead of the game by waiting. When that happens depends on your income and projected benefits payments. Using the Social Security Administration’s projected benefits to do some math (there are helpful calculators on their website) or working with a financial advisor can help you determine what is best, given your budget needs.
Poor health. If you have bad health or a family history that makes health complications more likely in the future, you may want to consider taking benefits early while you’re still well enough to take advantage of your retirement years. Similarly, if you believe you won’t live long enough to gain full benefits with your FRA, then early access to Social Security may be a good decision.
You can’t work and need income. Job loss or disability can sometimes make it impractical to wait until FRA. If your basic needs can’t be covered by employer-provided or private disability insurance along with other resources, then you may have no other option but to collect Social Security early.
You take it now; your spouse takes later. This approach might let you access some Social Security income immediately, while allowing your spouse’s benefits to continue to grow by having him or her wait until after his or her FRA. This can get complicated, and you need to fully understand your budget and other assets and resources, so it’s best to work with a professional financial advisor to ensure this strategy makes sense in your specific situation.
You have qualified dependents on your tax return. If this is the case, your dependents might qualify for benefits when you take your own. This is another situation where professional financial and tax advice is critical to decide whether this is best for you.
There are many other scenarios beyond just these five. That’s where you can really see the value of working with a qualified financial and tax professional to better understand your own personal options. Retirement should be an exciting time of life, and learning more now so you can make a thoughtful and well researched decision will help you get your financial ducks in a row later.
