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Claiming Social Security at 65? You May Need to Rethink That

By Kailey Hagen – Oct 13, 2021 at 6:15AM

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It's never a good idea to sign up for Social Security without understanding the consequences of your choice.

You're probably planning to sign up for Medicare at 65, and you might think it makes sense to apply for Social Security around the same time, if you're not already claiming. That's not necessarily a bad choice, but in some situations, it could cost you money over the long term.

Here's what you ought to know before you submit your application for Social Security benefits.

There's nothing special about 65

For many years, 65 was the age at which you qualified for your full Social Security benefit, also known as your full retirement age (FRA). But in 1983, Congress passed a law changing this age to account for rising life expectancies.

For adults born between 1943 and 1954, full retirement age is 66. Then, it rises by two months every year thereafter until it reaches 67 for adults born in 1960 or later.

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You don't have to wait until your FRA to sign up, but there's a definite advantage to doing so. When you sign up for benefits at 65 or any age before your FRA, the Social Security Administration reduces your checks. You lose 5/9 of 1% per month for the first 36 months you claim benefits early. If you sign up more than 36 months before your FRA, you lose an additional 5/12 of 1% per month. 

To put this in perspective, if you qualified for the average Social Security benefit of $1,559 per month at your FRA of 67 and you signed up for benefits at 65, you'd only receive about $1,351 per check. That's over $200 less per month. If you lived until 85, you'd get about $12,500 less from Social Security overall by starting at 65 versus waiting until 67.

But it all hinges on your estimated life expectancy. If you only lived to 70, you'd come out ahead by starting early. That's why it's impossible to say one claiming age is better than another. 

It's also worth noting that you don't have to sign up at your FRA either. You can continue to delay benefits and your checks will grow by 2/3 of 1% per month until you reach your maximum benefit at 70. But you definitely shouldn't delay any longer than this because you'll just cost yourself money.

How to decide when you should sign up for Social Security

The first step to deciding when to sign up for Social Security is to estimate your life expectancy. You'll use this information to figure out approximately how many years of benefits you'll receive.

Then, create a my Social Security account to see how much you can expect from the program at various starting ages. This uses real data from your work history. It also shows you how changes to your average annual income will affect your benefits.

Multiply your average monthly benefit at various starting ages by 12 to get your average annual benefit. Then, multiply this by the number of years you expect to claim benefits to determine your estimated lifetime benefit. In our example above of a $1,559 monthly benefit claimed from 67 to 80, the annual benefit is $18,708 and the lifetime benefit is $336,744. 

Figure out which starting age will give you the most money overall and, if you can afford to delay benefits until then, consider doing so. If that's not possible, you may have to sign up earlier and settle for a smaller lifetime benefit.

Once you know how much you can expect from Social Security, you can estimate how much you'll need to save on your own for retirement. Every time you revisit your retirement plan, revisit your plans for Social Security also so you always keep the two in sync.

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