3 Reasons to File for Social Security On Time

When should you claim Social Security benefits? Search for this question online and you'll get more than 2 million results. You'll also get lots of different answers, because there are many theories on which age is best to claim benefits.

While Stanford experts argue you should wait until 70 to claim benefits because you can increase income by earning delayed retirement credits, there are also good reasons to claim benefits at 62 -- the earliest age benefits are available, and the most popular age to claim them.

Of course, you can also take the simplest approach and, rather than claiming early or late, can claim your Social Security benefits on time. Here are three reasons that makes sense, along with some key information on what it means to claim benefits on time.

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What does it mean to claim Social Security benefits on time?

Claiming benefits on time means doing so at full retirement age (FRA). FRA varies depending on your birth year. The table below shows when FRA is, depending when you were born.

Data source: Social Security Administration.

1. There's a good chance you'll break even compared with claiming early

When you claim benefits before FRA, benefits are reduced by 5/9 of 1% for each month you claim early up to 36 months, and by an additional 5/12 of 1% per month if you claim more than 36 months before FRA. Your benefits could be reduced by as much as 30% if FRA is 67 and you claim benefits at 62. However, you receive benefits for five extra years, so this extra income must be considered when deciding whether to get your benefits at 62 or retire on time.

You can do the math to find out how long you'd need to receive higher benefits to break even for years of benefits missed. Add up the total amount of missed benefits, and divide by the extra amount you'd receive each month by filing at FRA. If you retired on time at a FRA of 67 with average benefits, you'd need to live to 78.7 years to break even compared with retiring at 62.

Average life expectancy in the United States happens to be 78.74 years. If you have an average life span, you'll get just a little bit more in benefits by retiring on time than if you'd retired at 62. And, if you live longer than average, everything extra is money you wouldn't have received otherwise.

If you wait until 70 to claim benefits, you'd have to live until 80.4 to break even, compared with claiming benefits at 62 -- so you'd need to live longer than average to end up better off.

2. You can work after claiming without losing benefits

If you start claiming Social Security benefits at full retirement age, you can choose to work without worrying about benefits being reduced. This gives you flexibility to do things like consulting or having a part-time job while still receiving Social Security.

If you claim Social Security benefits early and still work, your benefits could be reduced if you earn too much. If you're under FRA the entire year, $1 of your benefits will be reduced for each $2 earned above annual limits. If you work during the year you reach FRA, $1 in benefits is deducted for each $3 earned above a different higher limit, but earnings only count before the month you reach FRA. Starting the month you've reached FRA, you'll get full Social Security benefits no matter what you earn.

While you're credited back benefits you lose by working, there's no sense filing for Social Security early if you're not going to receive the benefits because you're working.

3. You can start claiming benefits before RMDs

Some people prefer to delay claiming Social Security until age 70 to maximize Social Security income. However, when you reach age 70 1/2, you'll have to start taking required minimum distributions (RMDs) from traditional 401(k)s and IRAs, which creates taxable income. Taking distributions can sometimes push income up high enough that Social Security benefits become taxable.

If you file taxes as a single person and your income is between $25,000 and $34,000, you could be taxed on up to 50% of Social Security benefits. If your income exceeds $34,000, you could be taxed on up to 85% of benefits. If your income is below $25,000, you don't pay taxes on benefits at all.

If you file taxes as married filing jointly, up to 50% of Social Security benefits become taxable if your income is between $32,000 and $44,000. If joint income is above $44,000, up to 85% of benefits could be taxed. If your joint income is below $32,000, you won't be taxed on benefits. If you file as married filing separately, however, Social Security benefits are typically taxed regardless of income.

For purposes of determining whether benefits are taxed, your income would equal half of Social Security benefits plus all taxable income from sources other than Social Security, as well as some tax-free income.

If you claim Social Security on time and delay withdrawals from traditional IRAs and 401(k)s in order to keep your income below where Social Security benefits become taxable until RMDs start, you can enjoy several years of tax-free benefits as well as keeping your retirement savings intact for later use. But if you wait until 70 to start receiving Social Security and you take RMDs the same year, it could boost your taxable income to such an extent that your benefits may be taxable from the start -- leaving you with a higher tax bill that will offset the larger Social Security checks you get by waiting.

What's the right age for you to claim benefits?

The right age to claim Social Security benefits depends on your situation. You'll need to consider your health, whether you can claim benefits on a spouse's work history, and what other sources of income you'll have during retirement. By understanding how Social Security benefits work, you can make the right choice that gives you the maximum in retirement income.