Signing up for Social Security is a big decision. There are several factors that determine how much you get, and you need to understand what these are if you hope to receive the most money possible.
If you were born in 1960 or earlier, you might be wondering if 2022 is the right time for you to sign up for Social Security. Here are three questions to ask yourself to help you decide.
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1. How old will you be in 2022?
Your age, along with your income history during your working years, determines the size of your benefit checks. The government assigns everyone a full retirement age (FRA) based on birth year. Yours is somewhere between 66 and 67. If you wait until your FRA to sign up, you get the normal benefit you're entitled to based on your work history.
But you can sign up as early as 62 if you want. The catch is that every month you claim benefits while under your FRA shrinks your checks a little bit. Someone with an FRA of 67 who claims at 62 only gets 70% of their full benefit per check, while someone with an FRA of 66 gets 75% per check if they sign up as soon as they become eligible.
You can also choose to delay benefits past your FRA, and your checks will increase a little every month until you reach the maximum benefit at 70. That's 124% of your full benefit per check if your FRA is 67 or 132% per check if your FRA is 66.
There's no advantage to delaying beyond 70, so if you'll reach this age in 2022, you should absolutely sign up by your birthday. But if you're under 70, you have a choice to make.
Delaying benefits only makes sense if you believe you'll live into your 80s or beyond. In this case, you'll likely get more money overall by waiting to sign up than you would by signing up early. But those with health issues who don't believe they'll live that long typically get more from Social Security by signing up sooner.
And sometimes, delaying benefits isn't always a choice. If you need help covering your bills right now, you might have to sign up in 2022.
2. Could the government take back some of your benefits?
There are two main ways people can lose some of their Social Security benefit back to the government. The first is the Social Security Earnings Test. Those who are still working while claiming Social Security under their FRA could run into this.
If you'll be under your FRA all year, the government will withhold $1 from your Social Security checks for every $2 you earn over $19,560 in 2022. If you'll reach your FRA in 2022, you'll lose $1 for every $3 you earn over $51,960 if you hit this amount before your birthday.
The good news is that money isn't gone forever. When you reach FRA, the government recalculates your benefit to account for the money it previously withheld. As a result, your future checks will be larger. But they'll still be smaller than they would have if you'd delayed your benefits until your FRA from the start. If you think the Earnings Test could pose a problem for you, you may be better off delaying benefits until you quit your job or reach your FRA.
The other way you can lose benefits is through taxation. That's a little beyond the scope of this article, but if interested, here's a look at how federal and state governments tax Social Security benefits. If you believe you could owe benefit taxes, you may also want to consider putting off your benefits until you're fully retired and your income is lower.
3. How will your decision affect your spouse?
Married couples can either receive their own Social Security benefit, if they worked long enough to qualify, or a spousal benefit. This is up to 50% of their partner's benefit at their FRA. Signing up early not only reduces your own benefit; it also reduces the spousal benefit your partner qualifies for. Unfortunately, delaying benefits past your FRA doesn't boost your partner's checks.
Coordinating with your spouse is key to getting the most household benefits possible. Sometimes that means having one person sign up early. When one partner has earned significantly more over their lives than the other, it's more important for the higher earner to delay. Sometimes, it's advantageous for the lower earner to sign up right away.
Their benefit can provide the couple with some supplementary income, which can enable the higher earner to delay. Then, when the higher earner signs up, the Social Security Administration will automatically switch the lower earner over to a spousal benefit if it's worth more than what they qualify for on their own. This can result in more money for the household overall.
So what should you do?
Whether you sign up for Social Security in 2022 is ultimately a personal decision. If you're thinking about it, make sure you understand how the factors above could affect how much you get from the program. And if you don't think 2022 is the best time to sign up, put the decision off for a year and revisit it in 2023.
