When you leave the working world, you'll likely rely on Social Security for a good portion of your retirement income. But the decisions you make regarding your benefits can significantly impact just how much money they provide. In fact, if you're strategic about when you start getting your Social Security checks, you could get an average of around $111,000 more as a retiree.
But how can you pick which Social Security claiming strategy actually makes the most sense for your situation? There are three key questions you need to answer to do so.
1. How long do you think you'll live?
This is a hard question to answer, but it's essential to determining when you should start your benefits. You can claim them as early as 62, but that's well before your full retirement age (FRA)-- the age when you receive your standard unreduced benefit, typically between ages 66 and 67. For each month you start getting checks before FRA, they get smaller due to early filing penalties.
Accepting smaller checks but starting them ASAP makes sense if you pass away young and don't live to your projected life span, as you'd get more lifetime benefits that way. But if you live longer than your actuarially predicted life expectancy, you'll lose out on substantial income if you make an early claim.
When you delay claiming benefits, you get fewer, but larger checks because you aren't subject to early filing penalties. You can further raise your benefits by earning delayed retirement credits if you delay retirement until sometime between FRA and age 70.
While you can't know with certainty how long you'll live, you can make a reasonable guess based on your personal and family health history. If you think longevity is in your future, your best strategy is to delay as long as possible. If you don't, grab the money while you can.
2. Are you married?
For single people, you only need to consider your own projected life expectancy and benefit amount when devising your claiming strategy. But if you're married, your choices could affect your spouse's Social Security income in several different ways.
First and foremost, widows or widowers get to keep the higher of the two benefits either spouse was receiving. If you're a higher earner and you don't want your spouse to experience a huge drop in household income if you pass on first, delaying the start of your benefits until 70 to maximize survivor benefits is almost always the best option.
Of course, there are many other factors to consider, including the fact that you have to claim your benefits before your spouse can get spousal benefits on your work record. Sadly, you can't count on the Social Security Administration to advise you on your best option, so use the calculators on the Social Security website to experiment with different approaches or talk to a financial advisor for advice if you aren't sure of the best approach.
3. How much money do you have saved to supplement your benefits?
Finally, your supplementary savings can also impact the decisions you make about Social Security.
If you have very little saved and fear running out of money later in life, it may make sense to delay the start of your Social Security checks as long as possible. That way, if you end up forced to live on Social Security alone, you'll have the largest possible income in your later years.
On the other hand, if you need to withdraw too much from your retirement accounts to cover basic bills because you're trying to delay your benefits claim, you might end up running out of money because you waited to claim Social Security. In this situation, a better approach may be to claim benefits earlier so you can keep more of your money invested and earning reasonable returns rather than draining your accounts.
Ideally, you'll have plenty of money saved to support yourself no matter when you claim benefits and can make your choice solely based on preference.
Don't claim Social Security without considering your strategy
As you can see, there's much to consider before you claim your Social Security benefits. While it may seem overwhelming to research your options, getting more money to enjoy your later years is worth the effort. Since it's hard to undo a benefits claim, take the time before you start your benefits to make the choice that makes the most financial sense for you.