The oldest baby bomers are now in retirement age, while the youngest are in their 50s. Considering that many baby boomers don't have substantial retirement savings, Social Security is set to remain a critically important source of income for millions of that generation as they retire over the next couple of decades.
Here's a closer look at three important facts that play a big role in how well Social Security will work for you and how much income you'll get. Whether you're ready to retire soon or still a decade or more away, these three facts about Social Security will affect you.
Full retirement age is set to change soon
Once you turn 62, you become eligible for Social Security retirement, but at a reduction to your full benefit, which you become eligible for at "full retirement age." For anyone born in 1943-1954, the full retirement age is 66. But for anyone born in 1955 or later, you should know that full retirement age is set to increase.
Starting in 2020, anyone born in 1955 will reach full retirement age a 66 years and two months. For those born in 1956, they'll have to wait another two months, to 66 years and four months. This two-month increase will continue until people born in 1960 or later reach the new full retirement age of 67 in 2027.
Why does this matter for baby boomers? Because it will affect how much of their benefit they'll receive, based on how early you retire. For instance, someone born in 1954 would have turned 62 in 2016, thus eligible for Social Security at a reduced level. Since their full retirement age is 66, they would receive 75% of their full benefit if they retired at age 62.
But someone born in 1958, for instance, would have a full retirement age of 66 years and eight months. But if that person retired at 62, they would only get 71.7% of their full benefit. It may not sound like much difference, but if you live to age 80, that's about $7,100 less on a $1,000-per-month benefit, not even including cost-of-living adjustments.
In other words, it's very important to know what your full retirement age is, no matter what age you plan to retire. A few months' difference could make thousands of dollars in difference in how much money you get.
This affects your spouse, too
Whether your spouse plans to retire on their own work record or on yours, the rules still apply when it comes to full retirement age and what their benefit will be. In other words, if your spouse is younger than you, it may be necessary for them to continue to work -- or at least delay filing for Social Security if they don't work -- in order to make sure the monthly benefit will be sufficient to cover your expenses.
This is particularly important to consider if your spouse will file on your work record, and is likely to outlive you. Here's what the Social Security Administration says about the survivors benefit and how it could be lower if you retire before full retirement age.
If your spouse started receiving retirement benefits before their full retirement age, we cannot pay you the full retirement age benefit amount from their record. The maximum survivors benefit is limited to what they would receive if they were still alive.
In other words, before you decide to take Social Security early, you may want to consider how it would impact your surviving spouse's income if they are likely to outlive you and would receive the survivors benefit.
If you're likely to live very long or die very early, it may affect when you should take Social Security
Social Security is structured to provide a lot of flexibility, since you can take benefits as early as age 62 or as late as age 70, depending on what works for your situation. And while the monthly benefit is significantly lower if you file early and much higher if you delay, the total dollars paid to someone who lives the average life span wouldn't be that much different.
But if you're an outlier with a significant chance of either living much longer than average or dying younger, that could affect what makes the most sense for you. Here's a table that breaks down where you would maximize your total benefit, based on filing age and age of death:
This table is based on a full retirement age of 66 and a full retirement age benefit of $1,000 per month. And as you can see, if you aren't likely to live beyond your mid-70s, it's almost certainly in your best interest to file at age 62 (with the caveat that you should consider how that would affect your surviving spouse). On the other end of the spectrum, if you're fortunate enough that you'll probably live well into your 80s or beyond, delaying Social Security will almost certainly mean more total income, not to mention a bigger check later in life when your ability to earn a wage is far more limited.
Take a balanced approach and consider all the repercussions
The facts above are largely about the financial impact of when you take Social Security. And while the financial part should play a primary role in when you file, it's not the only thing that matters. We must each also consider what kind of retirement we want, the value of other retirement assets, and what we want to do with the time we have before we die.
And the more you understand about Social Security before you retire, the more time you'll have to plan and prepare. If you want to maximize the quality and quantity of your retirement years, start today -- no matter how far from retirement you are.
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