There are many potential factors that could affect your decision of when to apply for Social Security retirement benefits, but some are more common and are of higher importance than others. With that in mind, here's how your retirement income needs, plans to leave your job, and your overall life situation should be factored into your Social Security strategy.

Your retirement income needs

Here's an often-overlooked retirement principle: It's not necessarily how much money you've saved. Rather, it's how much sustainable income you'll have after you retire.

Social Security card inserted in a pile of money.

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You can read my thorough guide to retirement income and savings requirements, but here are two general rules of thumb that are worth knowing:

  • You can expect to need about 80% of your pre-retirement income after you retire.
  • You can reasonably expect to withdraw about 4% of your savings in your first year, and to adjust your withdrawals for inflation in subsequent years, without much fear of running out of money.

Because of this, your income needs should be at the top of your priority list when it comes to deciding when to claim Social Security.

Consider this example: Let's say that you and your spouse are both 65 years old and determine that you'll need $6,000 per month to live on in retirement. We'll say that you have $750,000 in retirement savings, which translates to a sustainable monthly income of $2,500, leaving a $3,500 shortfall. If your Social Security benefits would total this much if you claimed now, you might want to go ahead and do it. If not, it may be a smart idea to wait and let them get a bit larger.

When you plan to stop working

This is perhaps the most obvious thing to consider, but it still worth mentioning. The point of Social Security is to replace some of your income after you retire, so when you retire is likely to play a big role in your decision.

There are a few things worth noting, however. First, there's no benefit to waiting past age 70 to claim Social Security, even if you're still working. Your Social Security benefit will get permanently higher for waiting past full retirement age to claim, but this is capped at a maximum age of 70.

Second, it's important to realize that if you're still working and haven't reached full retirement age yet, you may not even be able to collect your Social Security benefit. The Social Security earnings test says that your benefits (either in part or in their entirety) can be withheld if you earn more than a certain amount. And there are two components:

  • If you are going to reach full retirement age after 2018, $1 of your benefits will be withheld for every $2 you earn in excess of $17,040 for the year ($1,420 per month).
  • If you are going to reach full retirement age during 2018, $1 of your benefits will be withheld for every $3 you earn in excess of $45,360 annually ($3,780 per month), and only the months before the month you'll reach full retirement age are considered.

Your general life situation

Admittedly, this last one is incredibly vague, but that's kind of the point. There are many different variables that can come into play when trying to decide when to claim Social Security. Just to name a few of the key things you should consider:

  • Your health: Social Security is designed to give the average person the same total amount of money during their lifetime, regardless of claiming age. However, if you are in particularly good (or poor) health, this should certainly be taken into consideration.
  • Your spouse: Is your spouse entitled to a substantial Social Security benefit on their own work record, or will they be receiving a spousal benefit based on your record? How old is your spouse? When do they plan to stop working? The point is that if you're married, you need to consider their situation as well.
  • Your children: Did you know that if you have children under age 18 and you're collecting Social Security (or under 20 and a full-time high school student), they could be entitled to benefits as well? In situations like this, it can sometimes be worthwhile to claim your retirement benefit earlier than you otherwise would.

The bottom line is that there isn't any one factor that should determine when you should claim Social Security, and there's no one-size-fits-all formula to determine the best claiming age for you. The decision of when to start your Social Security benefits is an important one, and it's important to consider all of the pros and cons of potential claiming ages before making your decision.

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