One of the biggest decisions you'll make during retirement is when to start claiming Social Security benefits. You can file your claim as early as the day you turn 61 years and nine months old (although you won't actually start getting the benefits until you turn 62). However, filing early means that you'll receive reduced benefits for the rest of your life -- and now that the 'file and suspend' option has been repealed, there's no reset button if you change your mind later. On the other hand, if you wait until after full retirement age to claim Social Security, you'll receive extra money every month for life. So does it make more sense to grab the money as soon as possible or wait and get bigger benefit checks? The right answer for you depends on your circumstances both pre- and post-retirement.

When you should file early for your Social Security benefits

In recent years, fewer retirees have chosen to claim their Social Security benefits early: in 2013, only 35.6% of men and 39.5% of women chose to claim their benefits at age 62. However, in certain situations it can make a lot of sense to start claiming benefits as early as possible. For example:

  • You need the money. If you don't have the option of working and you don't have enough income from retirement accounts and other sources to support yourself, then by all means claim Social Security as soon as possible. Taking early Social Security benefits is much better than burning through your savings, potentially leaving yourself broke in future years.

  • Your medical outlook is poor. No one can predict how long they will live, but if you have medical conditions that affect your longevity, it can make sense to file for Social Security benefits early. The same is true if your spouse is the high-income member of the family and he or she is in poor health; if your spouse passes away before you do, you can switch to claiming survivors benefits at that point.

  • You have big plans. If your goal is an active retirement during which you'll do a lot of traveling, sports and other physical activities, you'd be wise to get started early while you still have the health and energy to really enjoy these adventures. In that case, claiming Social Security benefits early can help get you going with your chosen activities as soon as possible.

Social Security card with money

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When you should file right on time for your Social Security benefits

For most retirees, full retirement age is age 66 or 67. If you file for Social Security at your full retirement age, you will get your full benefits -- no more and no less. Typically, this will make the most sense if the following factors apply:

  • You need health insurance, but only until Medicare kicks in. One good reason to stay with your job until age 65 is that you don't want to have to buy an individual health insurance policy. Having an employer-provided health insurance policy can save you a great deal of money as you age, given the higher premiums charged for health insurance enrollees aged 50 and up. If this is the situation you're in, then it makes a lot of sense to just keep working until full retirement age and then start claiming your Social Security benefits.

  • You have a moderate life expectancy. An analysis by Charles Schwab shows that for a retiree with a $1000 monthly Social Security benefit, if he lives to age 78 he would "break even" on claiming benefits at age 62 versus waiting till full retirement age (meaning that he would have collected the same total amount of benefits by 78 -- in this case, $144,000 -- if he files right on time versus filing early). If he lives to age 83, he would "break even" on claiming benefits at full retirement age versus waiting till age 70. So such a retiree would be advised to file for Social Security at age 62 if he believes he will live no longer than age 78, and to file for benefits at full retirement age if he believes he will live no longer than age 83. And age 83 happens to be the predicted lifespan of a male who turned 65 in the year 2013 (women of the same age are predicted to live about two years longer). 

  • You're not married. Planning out your Social Security benefits can get more complicated for married couples, particularly if one spouse had a much higher income than the other. For spouses with unequal income, it typically makes sense for the lower earning spouse to claim benefits early and the higher earning spouse to claim benefits as late as possible. That will maximize the survivor's benefit the lower earning spouse will receive -- assuming he or she outlives the higher earning spouse -- while allowing the couple to live on the lower-income spouse's benefits during the intervening years. However, if you're single you don't need to worry about all these complexities.

When you should file late for your Social Security benefits

For every month that you delay claiming your Social Security benefits after full retirement age, you get what are called "retirement credits" that increase how much you'll receive once you do start getting your benefits. When you hit age 70 these retirement credits stop accruing, so it doesn't make sense to wait longer than that. Consider delaying your Social Security benefits as late as age 70 if:

  • You have a long life expectancy. If you're in excellent health and come from a long-lived family, you will likely outlive your predicted lifespan. In that case, delaying your Social Security benefits as long as possible helps to ensure that you won't outlive your savings. The more money you get from Social Security benefits, the less you'll need to take from your retirement accounts and the longer those accounts will last.

  • You have other sources of income. Perhaps you've decided to keep on working until you hit 70, or maybe you have a nice annuity or life insurance payout that can keep you well-funded until then. In that case, it makes a lot of sense to hold off on claiming your Social Security and enjoy a larger benefits check once you do get it.

  • Interest rates are low. For each year that you wait after full retirement age, your Social Security benefits will increase by 8%. Compare that to the returns you're getting on your retirement investments (which should largely be in bonds and other less-volatile investments by the time you hit retirement age). If interest rates are low, you're probably getting a whole lot less than 8% on your bond interest payments. In that case, it may make more sense to draw down your bonds and live on that money rather than tapping your Social Security benefits for income. Consult with a financial advisor first to be on the safe side.

Consider professional help

Juggling your income, lifestyle, investment, and tax factors to determine the best possible time to claim Social Security can be incredibly complicated. If you want to be sure you're getting the best possible deal, consider handing the whole problem over to an investment advisor with experience in retirement planning. But if you're not able or willing to seek out an expert, then basing your decision on the above factors will give you a good sense of when to start claiming your benefits.

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