Are you ready to claim Social Security?
Unfortunately, many people assume they should just file for benefits whenever they want after becoming eligible at age 62. But while it's true you have the right to claim your first check after reaching that milestone, the reality is your timing can profoundly impact your financial security for the rest of your life.
To avoid making a mistake, be sure you can answer these four crucial questions before you begin claiming your benefits.
1. What's your full retirement age?
Your age is important, because Social Security benefits are affected by how old you are when you claim them.
Although you can file for benefits any time after age 62, you have a full retirement age (FRA) that's set according to your birth year. If you were born in 1956 or later, it's between 66 and four months and 67. Each month you get Social Security retirement income before FRA, your benefit shrinks due to early filing penalties. These equal 5/9 of 1% for the first 36 months and an additional 5/12 of 1% for any prior month. Each month after FRA, your standard benefit will increase by 2/3 of 1%.
If you compare your current age to your FRA, you'll be able to determine if claiming Social Security now will raise or lower the amount in your check. Taken with your income needs and life expectancy, this information can help you decide the optimal time to start benefits.
2. How many years have you worked?
Social Security has a formula designed to calculate your benefits based on a percentage of your average wages in the 35 years when your salary was the highest (after adjusting each year's earnings for wage growth).
If you don't have a career history with 35 years of good earnings that you'd be happy to have included in your benefits calculation, you should consider working for longer to get it. This is especially true if you're earning a lot more now than you did earlier in your career. And if you haven't even worked 35 years yet, think seriously about whether you want to claim benefits, since the inclusion of $0 wage years in your benefits calculation will definitely reduce your checks.
3. What are all of the benefits you're entitled to?
Most people focus on Social Security retirement benefits, but there could be others you're eligible for as well.
For example, if you haven't yet reached full retirement age and are disabled, claiming Social Security Disability Income (SSDI) instead of retiring early could spare you early-filing penalties and result in a larger retirement benefit when the time comes. Or if you're widowed, you may want to claim survivors benefits and wait before getting your own checks.
4. Are you sure you're done working?
If you're not at full retirement age yet and continue to work while collecting Social Security, be prepared for the possibility of losing some of your benefits.
You lose $1 in benefits for every $2 you earn above $19,560 if you work during a year when you won't reach FRA. If you'll reach FRA but not until later in the year, $1 in benefits is forfeited for every $3 earned above $51,960. You're best off delaying Social Security unless you desperately need the additional income in cases when you expect to exceed those limits.
But keep in mind you will get some of the money back eventually. Based on how many months of benefits you forfeited, the Social Security Administration will recalculate your benefit at full retirement age as if you retired at a later date, increasing the size of your checks.
By asking yourself these four questions, you can be confident you begin claiming Social Security at the right time based on your personal circumstances and reduce the chances of making a costly mistake.