Social Security provides critical benefits to millions of seniors, and the age at which you first file for benefits can have a huge impact on how much income you receive throughout retirement. Your actual Social Security payments are based on your earnings during your top 35 working years. Once your base benefit amount is established, you can raise or lower your payments depending on when you first choose to file.
Now some people rush to claim Social Security at 62 because it's the earliest possible age to take benefits. Others wait until age 70 because doing so results in a benefits increase. But rather than opt for either extreme, many filers choose to take benefits once they reach their full retirement age, or the age at which they're eligible to receive their base benefit payments in full.
Your full retirement age is based on your year of birth, as follows:
|
Year of Birth |
Full Retirement Age |
|---|---|
|
1943-1954 |
66 |
|
1955 |
66 and 2 months |
|
1956 |
66 and 4 months |
|
1957 |
66 and 6 months |
|
1958 |
66 and 8 months |
|
1959 |
66 and 10 months |
|
1960 and later |
67 |
Data source: Social Security Administration.
If you wait until your full retirement age to claim benefits, you're considered to have filed for Social Security "on time." Here are three good reasons to go that route.
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1. You won't cut your benefits
Though 62 is currently the most popular age to file for Social Security, claiming benefits at 62 comes with one major drawback: a lifetime reduction in payments. Specifically, for every year you claim early, you'll reduce your benefits by 6.67% for the first 36 months, and then 5% a year thereafter. If claiming on time means waiting until age 66, but you rush to file at 62, you'll reduce your benefits by 25%.
Now some people mistakenly think that if they claim early, their full benefit amount will be reinstated once they reach their full retirement age. This, however, couldn't be further from the truth. Once you file for benefits, the amount you initially receive is the amount you'll lock in forever. Filing for Social Security on time means you won't have to worry about a reduction in benefits. And seeing as how Social Security provides the majority of income for 65% of beneficiaries, and is the sole source of income for 25% of seniors 65 and older, getting that full payment could spell the difference between paying your bills in retirement or struggling financially in your old age.
2. You can work and still collect your benefits in full
Though some people claim Social Security early in order to leave their jobs, many continue to work in some capacity while receiving benefits. And while that's a good strategy for generating income, the downside is that if you claim early and your earnings exceed a certain threshold, you'll lose a portion of your Social Security benefits as a result. But once you reach your full retirement age, you can earn as much money as you'd like without having to worry about a reduction in benefits. It therefore pays to file for Social Security on time if you plan to remain employed into your late 60s or beyond. This way, you won't lower your base benefit amount, and you won't face a reduction in benefits if you work and collect simultaneously.
3. You'll get access to more income while you're young enough to enjoy it
Some seniors hold off on filing for Social Security until age 70 because doing so results in a pretty significant boost in benefits. For every year you delay Social Security past your full retirement age, you'll get an 8% increase in benefits that remains in effect for the rest of your life. But as enticing a prospect as that may be, the downside of waiting is, well, having to wait. On the other hand, if you file for benefits on time, you'll get to enjoy that extra money at an age when you'll conceivably have just a bit more energy to make the most of it.
Another thing to consider is that while waiting could prove strategic for someone with an increased life expectancy, if your health is iffy, filing on time could be the more prudent financial move. Remember, while delaying Social Security will increase your benefit amount, it'll also reduce the number of individual payments you receive.
Let's say your full retirement age is 66 and your full monthly benefit amount is $1,600. Waiting until 70 to take benefits will up that payment to $2,112, but you'll get 48 fewer payments. Now if you live until age 82.5, you'll wind up breaking even as far as lifetime payments go. But if you only live until age 80, you'll come out ahead by over $15,000 if you file on time rather than wait.
The age at which you file for Social Security can have a long-lasting impact on your retirement. If you're not desperate for cash in your early 60s, and you don't want to take on the risks associated with delaying, it pays to claim Social Security at your full retirement age and enjoy the perks that come along with it.
