Americans who qualify based on their work record, or the work record of their spouse, can claim Social Security benefits at any time between 62 and 70 years of age. This is a pretty large window, and there are many potential factors that can lead you to choose to claim your benefits at a certain age.
With that in mind, here are three things you may need to consider when deciding when you should start collecting your Social Security retirement benefits. Not all of these reasons will apply to everyone, but these are three major factors that could affect your ideal Social Security claiming age.
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Your retirement nest egg
A general rule of thumb is that you should expect to need at least 70%-80% of your pre-retirement income to sustain your standard of living after you retire. Simple mathematics tells us that the less income you produce from your savings, the more you'll have to produce from Social Security.
Based on the "4% rule of retirement", you can expect to safely withdraw about 4% of your retirement savings each year without fear of running out of money. This means that if you have say, $500,000 saved, you can safely and sustainably expect $20,000 in annual income.
Here's a quick example. Let's say you earn $70,000 per year and have $600,000 in retirement savings. This means that you should expect to need at least $49,000 in annual income after retirement and can realistically expect $24,000 from your savings, meaning that ideally, you need to get $25,000 from Social Security.
If you are entitled to a Social Security benefit of $1,600 per month at age 66 ($19,200 per year), you could be forced to make sacrifices in your quality of living if you claim at this age. However, if you wait until age 70, your annual Social Security benefit would increase to $25,344, giving you sufficient retirement income.
Of course, this is a simplified example, but the point is that if you are worried about having enough income in retirement, it can be smart to wait to claim Social Security. On the other hand, if you have more than enough retirement savings, claiming early isn't necessarily a bad financial move.
Your health
Social Security is designed so that the average senior citizen gets roughly the same amount of inflation-adjusted benefits throughout his or her lifetime. In other words, for the average person, the lower benefit received for claiming early will be made up for by the additional years that person will be collecting income.
However, it's important to realize that this is based on actuarial averages and not on your personal situation. If you're in fantastic health and have a history of longevity in your family, for example, you may have a better-than-average chance at getting more money over your lifetime by waiting. In other words, if you have serious health issues or other reason to believe that you will not outlive the average person, it can be a good reason to go ahead and claim benefits as early as possible.
To be clear, there's still no guarantee that one age or another will work out in your favor. Perfectly healthy seniors die unexpectedly, and people who you wouldn't think would make it to 65 end up living to 100. There's no way to know for sure, but you may be able to put the odds in your favor.
Your spouse
Married couples have even more to think about when it comes to choosing their Social Security claiming age. With two potential income streams, there are several strategies that can be considered.
For instance, one popular strategy is to have the lower-earning spouse claim at or before their full retirement age, to start generating some retirement income. Meanwhile, the higher-earning spouse delays claiming their benefit, as the effects of delayed retirement will be amplified with a higher Social Security benefit.
Another consideration is whether your spouse expects to collect a spousal benefit based on your work record. In a nutshell, spousal benefits provide a retirement benefit of as much as half of the primary earner's benefit, even if the lower-earning spouse didn't work at all. Well, one of the rules says that nobody else can claim a benefit based on your work record until you claim your own benefit. And spousal benefits don't grow if you wait to claim them past full retirement age. So if your spouse is entitled to a benefit on your work record, it is rarely a smart idea to wait beyond your spouse's full retirement age to claim it.
Just a few of the possibilities
It's worth reiterating that these are just three of many possible situations that could influence your decision of when to claim Social Security. Other good reasons may apply -- for example, if you're in relatively poor health, are unmarried, and don't have much retirement savings, but are still working and don't need the money yet, that last reason could be enough to delay Social Security, even though the first three reasons may point toward taking your benefits early.
The bottom line is that choosing when to start collecting Social Security is a complicated decision, and it's important to consider all aspects of your health, family situation, employment situation (or lack thereof), and financial condition before deciding what's best for you.
