The most frequently asked Social Security question I get is, “When should I claim my Social Security benefits?” Well, that’s a loaded question, because there are so many moving parts and everyone’s situation is different. So, here are some considerations when you’re trying to figure out when is the right time for you to start Social Security.
Age and the size of my check
The age you begin claiming benefits will permanently affect how much money you receive every month. Key ages for claiming are 62, Full Retirement Age, and 70.
The earliest you can claim Social Security benefits is age 62. Some people claim at this age saying, “It’s mine and I’m going to take it now before the government runs out of money.” Others take it at 62 because they need the money or because of health issues; there are lots of reasons. If you claim benefits at age 62 you will receive approximately 25%-30% less than if you waited until Full Retirement Age (FRA); your benefit will be permanently reduced.
Claiming at Full Retirement Age (FRA) means you will get the full amount you’re entitled according to Social Security calculations based on your work history. You can find out what your FRA is at the Social Security website.
If you wait until age 70 to take your benefit, you’ll receive delayed credits, which increase your payment by eight per cent for every year you wait past your FRA to age 70; in other words, you get your full FRA benefit plus a bonus. There are no additional delayed credits past age 70.
That doesn’t mean delaying benefits is always the best choice. You have to consider your family history of longevity—how long have your ancestors lived and what’s your life expectancy. It’s a tough question. But if you don’t expect to live long, beginning your benefit early may be best. If you anticipate living into your late 80’s or beyond, delaying the start of benefits may be the best option.
What happens if I claim benefits and keep working?
Continuing to work after you claim Social Security benefits can have an impact on the amount you receive. If you claim benefits at 62 and keep working there are restrictions. Each year the Social Security Administration (SSA) sets a limit on how much you can earn before your benefit is decreased. In general, for every $2 you earn above the limit, $1 is taken back from your Social Security payment. This lasts until you reach Full Retirement Age (FRA). Past FRA you can earn all you want and your benefit will no longer be reduced. Depending on how much income you earn, delaying the start of your benefits may be a consideration.
If you begin benefits at your Full Retirement Age and continue working, it can mean a higher Social Security payout. You’re Social Security benefit is based on an average of your highest 35 years of wage-indexed earnings. So, if you earn more this year than you did in a previous year, it replaces a lower wage year and your Social Security payment should go up.
For example, if you make $100,000 this year, and $50,000 is the lowest amount you earned in the 35 years considered by Social Security, the $50,000 is replaced by the $100,000 and you get a raise.
The increase takes effect in January after the year you have the higher earnings, but it will be about 9 months before you see the extra money. Social Security does its annual automatic recalculation of benefits around September. That’s when you’ll see the increase and the retro-active back pay you have coming.
How does my decision to begin Social Security benefits affect my spouse?
There are two Social Security benefits that may be available to your spouse—the Spousal Benefit and the Survivor Benefit.
The maximum Spousal Benefit is equal to 50% of the benefit you are eligible for at your Full Retirement Age (FRA). However, if your spouse is entitled to more than that based on their own work history, they may not be eligible for the Spousal benefit.
If your spouse is eligible for the Spousal Benefit and you decide to claim your benefit before FRA, you will receive a permanently reduced benefit and so will your spouse.
One possible strategy is for the lower-earning spouse to start benefits early so the higher-earning spouse can delay benefits. Then, when the higher-earning spouse claims their benefits, the Social Security Administration automatically switches the lower-earning spouse to the spousal benefit if it would give them more money.
Then there’s the Survivor Benefit. It goes to a widow or widower, who is usually the lower-earning spouse. When one dies, the survivor receives 100% of what the deceased spouse was receiving at the time of death. By delaying your benefits to FRA or even until 70, the amount of your benefit goes up and thus creates a larger Survivor Benefit for your spouse. When someone begins receiving a Survivor Benefit, their own benefit goes away. SSA does not allow you to double dip.
So, you plan and analyze and begin your Social Security benefit. And then you decide it wasn’t the right thing to do. What then?
If you started taking benefits before your Full Retirement Age, you have 12 months from the date benefits began to change your mind and withdraw your application. If you do, you’ll have to repay all the money you received to that point, and that can be sizable if it’s been several months.
The other option is to suspend benefits once you reach FRA and start again when you turn 70. At that time SSA will recalculate your benefit and you’ll receive a check that’s bigger than when you suspended benefits.