If you've given any thought to the ideal age to claim Social Security retirement benefits, chances are good you've heard it's better to delay the start of them as long as possible.
Waiting to get your first monthly check boosts the income each payment provides, increases the benefits your surviving widow(er) could be entitled to, and gives you a slightly better chance of getting more lifetime benefits. But despite these advantages, you don't necessarily want to put off your benefits claim in every situation.
In fact, before you forgo Social Security checks you could receive, there's some basic math you absolutely need to do.
Here's how to calculate if delaying Social Security benefits makes sense
First, you need to understand a few key things:
- How much money you'll miss out on by waiting for benefits to begin
- How much extra money you'll get in each monthly check if you wait to start your benefits
- How long you'll need to receive extra money in your monthly checks to make up for all the potential income you missed out on
Fortunately, it's pretty easy to calculate these numbers and to do the math to figure out if delaying Social Security will probably pay off for you.
1. Calculate what your monthly benefit would be at a younger claiming age
Both your wages over your career and your age when you start checks determine what your monthly benefits are.
- If you claim benefits at full retirement age (FRA), you get your primary insurance amount. It's calculated based on a percent of average wages in the 35 years your inflation-adjusted income was highest.
- If you claim before FRA, benefits are reduced by five-ninths of 1% for the first 36 months and five-twelfths of 1% for each prior month.
- If you claim after FRA, benefits are increased by two-thirds of 1% for each month until age 70.
You can see your standard benefit on the Social Security Administration website. The SSA website will also show you your benefits at different proposed claiming ages. Or you can do the math by applying the above penalties and credits to your standard benefit.
For example, if your full retirement age is 67 and you retire five years early, you'd be hit with:
- 36 months of penalties equaling five-ninths of 1%
- An additional 24 months of penalties equaling five-twelfths of 1%.
If your standard benefit would have been $1,600 and you end up with a 30% reduction due to your early claim, the checks you'll get after starting them at 62 would equal $1,120 per month.
2. Decide how long you're thinking about waiting -- and calculate how much income you'll miss in the interim
Next, think about how many years you're potentially planning to delay benefits to figure out how much income you're forgoing.
If you're deciding between starting checks at 62 or at 67 when you reach full retirement age, you'd miss five years of income.
If your reduced benefit at 62 would be $1,120 as calculated above, missing five years of these checks would cost you $67,200 over that period of time.
3. Calculate how much higher your monthly checks will be once you eventually start them
Next, see how much you'll gain by putting off starting your benefits
Again, you can see an estimate of your monthly income at each possible retirement age on the Social Security Administration website. You can also apply the penalties and credits described above.
If we continue with our above example and you're choosing between claiming a $1,120 benefit at 62 or a $1,600 benefit at 67, your monthly checks would be $480 higher after waiting five years to start them.
4. Figure out how many months of higher checks you'll need before making up for missed income
Finally, figure out how long you must receive the extra monthly money in your checks to cover all the Social Security benefits you passed up.
If you missed out on $67,200 and get an extra $480 per month because of it, you'd need to receive 140 higher checks to cover all the missed income.
That means if you got Social Security checks for 11.67 more years after claiming Social Security checks at 67, you'd break even for the delay. And if you lived even longer and kept getting those higher checks, you'd end up better off.
You'll have to carefully consider your health status to guess whether you're likely to live long enough for delaying your claim to pay off in the end.
What if the math shows delaying isn't worth it?
If you don't expect to live long enough to break even after putting off the start of your benefit checks, that often means you shouldn't delay your Social Security claim.
But that's not the case in every situation. If you file for benefits early, you shrink the survivors benefits your spouse could be eligible for if you were the higher earner. So be sure to consider the potential impact on your partner if you pass away first.
By doing this simple math -- and considering whether your widow(er) will rely on your Social Security survivors benefits -- you can make a smart choice about whether claiming your benefits early is the right move.