Of all the great plans you have for the upcoming year, filing for Social Security might be one of them. And if that's the case, it's a decision not to take lightly. Though your Social Security retirement benefits themselves are based on how much you earned during your top 35 working years, the age at which you initially start taking them can change your monthly payout. There are other factors to consider as well before pulling the trigger on Social Security, so if you're thinking that 2018 is the year you'll file, here are four questions to ask yourself beforehand.
1. Have I reached full retirement age?
Though your Social Security benefits are calculated based on your earnings record, you're only entitled to your full benefit amount if you wait until full retirement age to file. Your full retirement age is based on the year you were born, and for today's workers, it's either 66, 67, or 66 and a certain number of months.
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That said, you're not forced to wait until full retirement age to take benefits. In fact, you're allowed to file as early as 62, which is what many seniors end up doing. The problem, however, is that for every year you claim benefits before full retirement age, you'll reduce those payments by a certain percentage. So if you're turning 62 next year but your full retirement age is 67, and your estimated full monthly benefit amount is $1,500, you should know that filing immediately will cut each payment down to $1,050 -- for life.
This isn't to say that there aren't good reasons to file for benefits before full retirement age. Just keep the consequences in mind if that's what you're planning to do, or push yourself to wait a little longer if full retirement age isn't all that far away.
2. How badly do I need the money?
If you've fallen on hard financial times -- say, you've lost your job and are struggling to find a new one -- then it often pays to get your hands on your Social Security income as soon as you're eligible. On the other hand, if you don't need the money right away, then waiting can pay off tremendously.
By holding off until full retirement age at the very least, you'll ensure that your monthly benefits don't get slashed. But if you further delay your benefits up until age 70, you'll get an automatic 8% increase for each year you hold off.
So let's say you're turning 66 in 2018, which is your full retirement age. Your plan might be to claim those benefits since you know you'll collect them in full. But if you don't need the money right away -- say, you're still working or receive an inheritance that will tide you over for a number of years -- then consider the upside of holding off on filing.
3. How healthy am I?
You might think the state of your health should have nothing to do with Social Security, but actually, the opposite is true. One interesting thing about Social Security is that it's designed to pay you the same total lifetime benefit regardless of when you first file. However, that formula assumes that you'll live an average lifespan. If you pass away at a relatively young age and don't file for benefits early, then you could lose out on some of the money you might otherwise be entitled to. On the flipside, if your health is great and you think you'll live much longer than expected, you'll often come out ahead by waiting on Social Security.
Though it's impossible to predict your own mortality, what you should do before you file for benefits is think about the state of your health and how it might impact your ultimate lifetime payout. Your goal should be to get as much money out of Social Security as possible, and your health might end up being the single greatest determining factor in whether you do.
4. How will my decision impact my spouse?
If you're single and are aiming to file for Social Security next year, you'll need to think about whether doing so will ultimately benefit you. But if you're married, you'll need to consider the consequences of your decision as they apply to your spouse.
For example, if you spouse never worked, he or she will be entitled to up to 50% of your benefits, so the more you collect each month, the more your spouse stands to collect as well. Furthermore, if you pass away before your spouse, he or she will be entitled to survivor benefits equaling up to 100% of what you formerly collected. Therefore, while you might think it's a good idea to file as early as possible if your health is poor, if you expect your spouse to outlive you by several decades, then it might pay to wait on those benefits and give your spouse a higher monthly income in the future.
While filing for Social Security in 2018 is a move that could end up working out in your favor, be sure to put some real thought into the decision before making it official. You've worked hard for those benefits, so the last thing you want to do is put yourself in a position where you're not making the most of them.
