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3 Reasons to File for Social Security on Time

By Matthew Frankel, CFP® – Aug 13, 2018 at 6:07AM

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Here's why you might want to wait until your full retirement age.

The majority of Americans don't know what their full retirement age is for Social Security purposes, and most people don't wait until their full retirement age to file for benefits anyway.

While it may seem like a long time to wait until your full retirement age of 66 to 67, there are some good reasons you might want to hold off and file for Social Security on time. Here are three in particular that you may want to consider.

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You'll get the full monthly benefit you've earned

You can start Social Security at any point after your 62nd birthday, but if you choose to claim before reaching your full retirement age, your benefit can be dramatically reduced.

Depending on when your full retirement age is -- between 66 and 67 years old, depending on when you were born -- your benefit can be permanently reduced by as much as 30% for claiming early.

As an example, let's say you were born after 1960, meaning your full retirement age is 67 for Social Security purposes. If you would be entitled to a monthly benefit of $2,000 at your full retirement age, you'd get just $1,400 per month if you claim at 62. An additional $600 per month would likely make a big difference in your standard of living after retirement, so this could be a big reason in favor of waiting.

To be clear, there are some excellent reasons for claiming Social Security early -- such as an unexpected job loss. However, if you don't need to claim Social Security early, the financial difference of early, on-time, or even delayed Social Security should be a major factor in your decision.

You won't have to worry about the earnings test if you're still working

As a financial planner, one of the most common questions I get is "Can I claim Social Security if I'm still working?"

The short answer is yes, but in reality this is more complicated than a simple yes or no, especially if you haven't attained full retirement age yet. Specifically, the Social Security "earnings test" limits the amount of money that you can earn and still collect Social Security if you are younger than full retirement age.

For 2018, there are two parts to the earnings test:

  • If you will reach full retirement age after 2018, you can earn as much as $1,420 per month with no effect on your benefits. Beyond this amount, $1 of your benefits will be withheld for every $2 in excess earnings.
  • If you will reach full retirement age during 2018, you can earn as much as $3,780 per month with no effect on your benefits. Beyond this amount, $1 of your benefits will be withheld for every $3 in excess earnings, and only the months before your birth month are considered.

The point is that once you've attained full retirement age, there's no earnings test that applies to you. You can collect your entire Social Security benefit regardless of how much you earn from your job.

You won't have to worry about health insurance if you're planning to retire

One of the biggest misconceptions about Social Security among pre-retirees is that the ages for Social Security and Medicare are the same. That is, if you take one, you can take the other.

Unfortunately, this is not true. While you can claim Social Security at any point between 62 and 70, the age of eligibility for Medicare is a set 65 years old.

Here's the point. Unless you're one of the lucky individuals who can keep their employer-sponsored health insurance after retirement, if you claim Social Security before you turn 65, you'll have to pay for your own health coverage in the meantime. And this can be expensive. In fact, the health insurance premiums for a 62-year-old can easily eat up most, if not all, of your Social Security benefit.

By claiming Social Security on time, you'll be well past the age of Medicare eligibility and you won't have to worry about paying health insurance costs out of your own pocket.

Most Americans don't file on time

You may be surprised to learn that the majority of Americans don't wait until full retirement age to claim Social Security. The majority claim early, and the most common Social Security claiming age is 62 -- as early as possible.

As I mentioned, there are certainly some good reasons to go ahead and file for benefits at 62, but as we've discussed here, there are some pretty clear advantages to filing on time as well. As you consider your ideal claiming age, it's important to weigh all the pros and cons and not just focus on the prospect of immediate income.

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