5 Questions That Can Help You Decide When to Claim Social Security

If you're unsure when to start drawing benefits, answering these questions may help.

Todd Campbell
Todd Campbell
Dec 9, 2018 at 10:16AM
Investment Planning

The age at which you claim Social Security benefits can have a big impact on the financial security of your family, even after you're gone, so a decision should be made only after you thoroughly understand your options. While there's no perfect age to claim benefits, these five questions may help you figure out what makes the most sense for you.

No. 1: How much will I get?

Everyone will end up getting a different amount in Social Security benefits because each person's benefit is based on that individual's work history. Specifically, Social Security calculates your average inflation-adjusted monthly income based on your highest 35 years of earnings, and then it reduces that amount at specific income thresholds that it calls bend points.

A retiree in front of a laptop computer with question marks on a wall behind him.

Image source: Getty Images.

The program is designed to pay the average worker about 40% of pre-retirement income, with low-income workers receiving more than that and high-income workers receiving less.

Regardless of your income, you'll only get 100% of your Social Security benefit if you claim at full retirement age, which varies from 66 to 67 for people born in or after 1954. If you claim earlier than that, you'll get a reduced payout based on the number of months you claim early; if you claim later than that, you'll receive delayed retirement credits that increase your benefit by 8% a year between full retirement age and 70.

For example, if your full retirement benefit is $1,000 per month at age 67, then you'll receive $700 per month if you claim at age 62 (the earliest age possible) or $1,240 per month if you wait until 70.

If you set up a user account on the Social Security website, you can view the exact amount you can collect at various ages, or you can contact the Social Security Administration by phone or in person.

No. 2: How's my health?

Social Security is designed to pay out the same amount in lifetime benefits regardless of when you begin receiving them. 

However, its calculations are based on average life expectancy, and many people die earlier or live longer than average. Therefore, taking stock of your health before deciding when to claim is important.

If you're in good health and longevity runs in your family, then waiting to claim can produce the largest haul in lifetime benefits from Social Security, but waiting could be a mistake if you're in poor health.

For example, if I wait until age 70 to claim my benefits, I would have to live to be nearly 80 in order to break even with what I would get had I claimed at age 62 instead. 

A chart showing breakeven points based on various claiming ages.

AUTHOR'S CHART.

No. 3: What's my retirement vision?

Everyone's view of retirement is a little different. Some people want to retire completely and travel, while others want to continue working and live simply. The type of retirement lifestyle you want can influence when to begin your benefits.

For example, delaying Social Security exposes you to the risk of being diagnosed with a condition that limits your ability to travel before you begin collecting benefits. Therefore, if you want to travel in retirement, you might want to start drawing Social Security early, even though it reduces your monthly benefits.

A piece of paper in beach sand with the words life and balance written on it.

Image source: Getty Images.

Or, if you want to work at least part-time and collect Social Security, you could wind up pocketing less money than you think if you claim early because of Social Security's earnings limit and federal income tax rules.

If you're younger than full retirement age, you can only earn up to $17,640 before triggering the withholding of $1 for every $2 earned above the limit. Or if you're reaching full retirement age in 2019, then you can only earn up to $46,920 in the months prior to your birthday month without triggering withholding of $1 for every $3 earned over the limit. 

Taxes can take a bite out of your Social Security, too. If you work and earn over $25,000 (if single) or $32,000 (if married filing jointly), then you'll pay federal income taxes on at least some of your Social Security.

Because of the possibility of withholding and higher income taxes, it may make sense to delay Social Security until full retirement age (when the earnings test disappears) or you think your earnings will be low enough to avoid income taxes on your benefit.

No. 4: How much do I have in savings?

Very few retirees have significant savings. And unfortunately, job losses are one of the most common reasons people claim Social Security benefits early.

If you've beaten the odds and socked away a lot of money for retirement, then you'll have the flexibility to delay benefits. But if your savings are limited, then you might not have any choice but to claim benefits early if life throws you a curveball. 

As a rule of thumb, advisers recommend retirees withdraw no more than 4% of retirement savings annually to reduce the risk of outliving their savings. For instance, if you have $500,000 in retirement savings, you can plan to withdraw up to $20,000 per year. If you don't think your savings will cover your monthly expenses in retirement, then waiting to claim Social Security so you can get a bigger monthly check could be wise.

No. 5: Will my spouse have enough money when I'm gone?

Benefits are permanently reduced if they're claimed early, and that can pose a big problem for your spouse after you're gone. Survivors can only collect the higher of their own benefit or your benefit. So if you claim early and your spouse's survivor benefit is smaller because of that, your spouse could struggle to make ends meet if you don't plan ahead.

Overall, when it comes to picking the right age to claim benefits, there's a lot to consider, so learn as much as you can about the claiming strategies available to you before you decide.