Choosing when to file for Social Security is a key decision that will affect your finances for the rest of your life. Social Security gives you the right to claim retirement benefits once you reach age 62, but what the Social Security Administration considers to be "on time" is your full retirement age, which depends on your year of birth and is currently rising from 66 to 67. Waiting to file for benefits has its drawbacks, but there are also good reasons why you should consider waiting beyond age 62 to file for Social Security. Let's discuss three of them.
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1. You can avoid a benefit cut while still getting monthly payments relatively early
Many retirees find that filing for Social Security on time at full retirement age is a happy medium between getting benefits as early as possible and maximizing the size of their monthly payments by waiting until age 70. For those who turn 62 this year, if you claim now, you'll lose a bit more than 25% of the monthly benefit you would have received had you waited until full retirement age to start taking Social Security. If you file "on time," you'll have to wait a bit more than four years to start getting payments, but they'll be significantly bigger, which will go a long way toward covering your retirement expenses.
Meanwhile, waiting until age 70 will yield benefits 30% higher than what you'd receive at your full retirement age. However, for some retirees, those three extra years are too long to forgo the financial assistance Social Security provides. The happy medium of claiming benefits at your full retirement age can hedge your bets in both directions.
2. You don't have to worry about forfeiting benefits because of work
If you're younger than your full retirement age, working, and receiving Social Security payments, then the SSA will take back some of your benefits if your earnings from your job exceed certain limits. In 2017, those who will be younger than full retirement age all year will sacrifice $1 in benefits for every $2 they earn beyond $16,920. If you will hit full retirement age this year, then a higher earnings limit of $44,880 applies, and you lose $1 for every $3 above that threshold.
However, none of those rules applies once you reach full retirement age. You can keep working and hang on to all of your Social Security benefits once you hit that milestone, so waiting to file for Social Security on time will prevent you from forfeiting any benefits.
3. You can give your family potentially larger benefits than they'd get if you filed early
Finally, one thing that married seniors should remember is that their claiming decisions can have an impact on what their spouses receive from Social Security. Spousal benefits are based on full retirement age benefits, regardless of when the primary worker files. However, any survivor benefits that your spouse or eligible family members may receive after your death will reflect the timing of your decision to file. Claim at 62, and not only will you suffer a haircut to your own benefits, but your qualifying survivors will receive that much less as well.
This matters the most when there's a big income disparity between the two spouses during their respective careers. However, there are situations in which two-earner families can also use strategies involving survivor benefits to maximize what they get in total from Social Security. Filing on time can be the best way to balance competing interests and boost benefits.
Deciding when to file for Social Security is difficult, but it pays to look at the question carefully. File for Social Security on time, and you may strike the right balance between the number of checks you receive and the size of those checks.
