If it weren't for Social Security, countless seniors would inevitably wind up living well below the poverty line. According to the Social Security Administration, 61% of retirees depend on their benefits to provide at least half of their monthly income, and for unmarried seniors, this number climbs to 71%. Because the age at which you first claim benefits impacts your ultimate payout, it's crucial to find the right age to file.
Currently, American workers can claim Social Security retirement benefits at any point during an eight-year window starting at age 62 and ending at age 70, the latest age at which you'll get an incentive for delaying benefits. Somewhere in that range is your full retirement age (FRA), which is based on the year you were born. For today's older workers, that age will be 66, 67, or somewhere in between.
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When most people contemplate when to take benefits, they're typically choosing between filing as early as possible (at 62), filing at their FRA, or delaying past their FRA to get a boost in benefits. But because 65 has long been a popular age to retire in general, it's also a contender for claiming benefits.
The question is: Should you file for Social Security at 65? There's no one-size-fits-all answer, but keep reading, and you'll get an idea of whether it's the best choice for you.
Reasons to claim Social Security at 65
Claiming Social Security at 65 can be a smart idea under certain circumstances. Here are a couple of reasons to file for benefits at 65:
1. You're close to full retirement age. The problem with filing for benefits early is that doing so results in a permanent reduction in your monthly payments. Specifically, you'll lose 6.67% for each year you're ahead of schedule for up to three years, and then 5% of your benefits for each year beyond that. However, while filing for Social Security at 65 will cut your benefits, you won't face nearly as steep a reduction as you would by filing at 62. And if you have other compelling reasons to take benefits at that time -- say, you've lost your job or need the extra income -- then you're better off slashing your benefits by 6.67% than you are charging up a storm on your credit card in order to pay the bills.
2. You'll get extra cash to enjoy while you're younger. Though many seniors rely on Social Security to pay the bills, if you've saved well for retirement and can easily get by using the money from your IRA or 401(k) alone, claiming benefits a bit early might give you more money for leisure and travel -- things you're more apt to enjoy during the earliest stages of retirement. Though Americans are living longer these days, you never know when your health might take a turn for the worse, so if a slight reduction in benefits gives you access to that money sooner, you might as well take it.
Reasons not to claim Social Security at 65
Of course, claiming Social Security at 65 isn't the right move for everyone. Here's why you might consider holding off on benefits until FRA or later:
1. You can't afford to cut your payments. If you don't have much in the way of retirement savings and expect to need those Social Security checks to keep up with your basic living expenses, then taking even a slight reduction could be a dangerous move. If you're looking at a less-than-impressive IRA or 401(k) balance, or you don't have another source of retirement income other than Social Security, then it pays to wait at least until you reach FRA, if not longer, to claim benefits, provided you're able to keep working until that time.
2. If you work and collect Social Security at the same time, you'll lose a portion of your benefits. Say you're still working at 65 but you're having trouble paying the bills, or you feel you need the money for some other reason. While you can work and collect Social Security simultaneously, you'll lose a portion of those benefits if you file at 65, because at that point you won't have reached your FRA.
In this type of scenario, your benefits won't be cut unless your independent earnings exceed a certain limit. In fact, you can earn up to $16,920 a year without losing any benefits, but for every $2 in earnings above that limit, you'll relinquish $1 in Social Security income. Furthermore, if you're turning 66 this year, you can earn up to $44,880 without losing a portion of your benefits, and you'll give up just $1 for every $3 of earnings above that threshold. But if you attempt to work and file for Social Security before reaching your FRA, there's a good chance you'll not only slash your benefits, but lose a portion of them on top of that due to the aforementioned rules.
The decision to claim Social Security at 65 -- or any other age, for that matter -- should not be taken lightly. You'll need to seriously weigh the pros and cons before pulling the trigger on those benefits, because once you file for Social Security, there's no going back.
