3 Reasons to File for Social Security on Time

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You can choose to take Social Security anytime between the ages of 62 and 70, but your full retirement age is between 66 and 67, depending on the year in which you were born. While there is no one-size-fits-all age at which it's best to file for Social Security, here are three good reasons you may want to take it at exactly your full retirement age.

You'll get your full benefit amount

The earliest age you can claim Social Security is 62. The most popular age for claiming benefits? You guessed it -- 62.

Data source: Center for Retirement Research. 

Most people know that the earlier you claim Social Security, the lower your benefit is, but let's look at the numbers to highlight just how much monthly income you sacrifice by claiming early.

If you claim Social Security before your full, or normal, retirement age, your benefit will be permanently reduced by the following percentages:

• 6-2/3% per year or 5/9% per month, up to 36 months before your full retirement age
• 5% per year or 5/12% per month, beyond 36 months early

As an example, let's say your full retirement age is 67, and you estimate that you'd be entitled to a payment of $1,800 per month at that time. If you claim benefits at 62 (60 months ahead of schedule), then your benefits will be reduced by 30% permanently:

(5/9% x 36 months) + (5/12% x 24 months) = 20% + 10% = 30%

Suddenly, your $1,800 monthly benefit would become just $1,260.

To be clear, there are some good reasons to claim early. Just be aware of how much monthly income you're sacrificing by doing so.

2. You'll already be eligible for Medicare

Even if you can afford to retire early and collect Social Security early, it may still be a good idea to hold off for a few years until you reach your full retirement age -- or at least age 65.

If you can keep your health insurance after you retire, if you can be covered under your spouse's plan, or if you have some other way of maintaining affordable health coverage, then this advice doesn't apply to you. For the rest of us, however, a major challenge of retiring early is paying for health insurance until Medicare kicks in at 65.

While it's unclear what health insurance options will be available if President-elect Donald Trump repeals the Affordable Care Act, Obamacare is still available for 2017 enrollment, and it's the best estimate we have of non-employer healthcare costs.

A quick estimate from Healthcare.gov shows that a 62-year-old couple in my area can expect to pay approximately $1,668 per month for a Bronze-level plan with a $12,700 family deductible, or $2,357 per month for a Gold-level plan with a $1,600 deductible. Depending on the plan chosen, this implies that a 62-year-old couple can expect to pay at least $60,000 in healthcare premiums before becoming eligible for Medicare at 65. At the very least, be sure to factor this cost into your early retirement plans.

3. Your spouse may rely on you for their benefit

If your spouse plans to collect a spousal Social Security benefit on your work record, be sure to take their full retirement age into account, especially if you're thinking about delaying your benefits to get a higher monthly payment.

Here's a thorough discussion of spousal benefits, but the most important thing you need to consider is what happens when a spouse claims a benefit early or late.

Just like your Social Security retirement benefit, your partner's spousal benefit can be permanently reduced if they start collecting benefits before their full retirement age. The reduction percentage is different, but the principle is the same. However, while your benefit will be permanently increased by 8% per year after your full retirement age, spousal benefits will not.

Why is this important to you? One of the major rules of Social Security spousal benefits says that for your spouse to be eligible to collect a benefit on your work record, you must be actively collecting your own benefit. Because your spouse doesn't get credits for delayed retirement, it's often not a financially wise idea to delay your own benefit past their full retirement age.

What is "on time" for you?

As a final thought, since this is about taking Social Security "on time," it's important to define what that means. Full retirement age for Social Security is 66 years old for individuals born in 1954 or earlier. Beginning with workers born in 1955, full retirement age increases by two months each year, until it reaches 67 years of age for those born in 1967 or later.

Better yet, if you haven't done so already, create an account at www.ssa.gov and check out your most recent Social Security statement. Here you'll find your full retirement age, an estimate of your retirement benefit based on your work record so far, and some other important information about your future benefits.