When you claim Social Security benefits, you've made a decision that shapes the rest of your financial life. Undoing a claim can be very difficult and may not always be possible depending on your circumstances, so in most cases, your choice is an irrevocable one.
You don't want to make such a big decision if you don't have all the facts. So make certain to watch for these four signs that you're really ready to file for benefits.
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1. You've made a financial plan for your retirement
Social Security can't be your sole retirement income source, so you shouldn't claim your benefits until you have a comprehensive plan for how you'll support yourself in your later years. Your financial plan should include details such as:
- How much you'll spend each year
- How much income your Social Security benefits will produce
- How much supplementary income you'll need from other sources
- The amount of income your savings can produce at a safe withdrawal rate
If you go through the planning process and find your income won't be sufficient to cover expenses, this is a clear indicator you aren't yet ready for your Social Security checks in 2022. You'll need a better financial plan first.
2. You understand the Social Security benefits formula
The Social Security benefits formula is complicated but it's important to get the basics down before deciding to claim your check. Specifically, you need to know that:
- Your standard benefit is based on average inflation-adjusted earnings during your 35 highest-earning years.
- Your standard benefit is reduced if you start your checks before full retirement age. FRA is based on birth year and is between 66 and 4 months and 67.
- Your standard benefit is increased if you start your checks after full retirement age.
Knowing this formula is important because otherwise you could inadvertently make decisions that shrink your monthly checks and lifetime benefits.
For example, if you give up your job and don't yet have a 35-year work history, benefits will be smaller than they would otherwise have been due to $0 wage years being used to calculate your average earnings. Likewise, you might not realize claiming checks before 70 will result in a benefit that's below the maximum income Social Security could have provided each month.
By learning the formula, you can decide if 2022 is really the right year for you to get your first check or if putting it off for a while could be beneficial.
3. You know how your claiming choice will affect your spouse
Surprisingly, it's not just your Social Security income you could affect with your decision to file for benefits this year. Your spouse can also be impacted.
If you put off claiming your own benefit and your spouse was hoping to claim spousal benefits based on your work history, the consequence is that your spouse can't get those spousal benefits until your own checks start.
On the other hand, if you want to make sure your widow(er) is provided for and you're the higher earner in the relationship, you need to be aware an early claim could shrink survivor benefits. That's because your surviving spouse is entitled to keep the higher of the benefits each partner was receiving after a death. Your decision to file for benefits early and reduce the monthly income they provide will leave them with less.
Understanding these rules is crucial so your 2022 Social Security benefits claim doesn't destroy your chances to get the highest combined benefits as a couple.
4. You won't end up forfeiting your benefits by working
Finally, if you're under full retirement age and considering claiming benefits in 2022, think about whether you'll be giving up work or not. This is an important issue because earning too much could result in some or all of your benefit checks temporarily disappearing.
In 2022, you can make as much as $19,560 per year (or $1,630 per month) if you won't reach FRA at all during the year. If you make more, you lose $1 in benefits for each $2 extra earned. If you'll hit FRA some time during the year, you'll be allowed to earn $51,960 for that portion of the year before you reach FRA, and then you'll forfeit $1 in benefits for each $3 extra earned.
The Social Security Administration does give you credit for missed benefits and recalculates your check amount at FRA if you temporarily forfeit benefits due to earning too much. Monthly benefits go up as a result of this recalculation. But there's little use in starting your checks in the first place only to see them all disappear due to high wages.
By taking these four issues into account, you can decide if claiming Social Security this year actually makes sense for you or not. You may determine 2022 is your year -- but if you decide it's not, it's far better to know that before you make a decision you come to regret.
