Social Security can be a lifesaver in retirement, especially if your personal retirement savings aren't up to snuff. For many people, Social Security benefits even make up the majority of their income in retirement. In fact, nearly half of married beneficiaries depend on Social Security for at least 50% of their income, and one in five married couples depend on their benefits for more than 90% of their income, according to the Social Security Administration.
Choosing when to claim Social Security benefits is an important decision, and it will affect how much you receive each month for the rest of your life. You can claim as early as age 62, but for every month you claim before you reach your full retirement age (FRA) -- or the age at which you'll receive the full benefits you're theoretically entitled to each month -- you'll receive slightly smaller checks. Delay claiming benefits until after your FRA, though (up until age 70), and you'll receive more money each month.
If you want to maximize your retirement income, usually the advice is to delay claiming benefits for as long as possible. However, there are a few situations where it pays to claim as early as you can.
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1. You don't expect to live past your 80s
In theory, you'll receive the same amount in lifetime benefits regardless of when you claim. If you claim early, you'll receive more checks overall -- they'll just be smaller. If you delay claiming, you'll receive fewer, bigger checks. And while you can't predict exactly how long you'll live, if you delay claiming benefits until age 70 and are only able to enjoy, say, five years in retirement, claiming as early as possible may be to your advantage.
Also, your Social Security "break-even age" plays a role in deciding whether to claim early or delay. Your break-even age is essentially when the lifetime benefits you'd receive by claiming later surpasses the total amount you'd receive if you'd claimed early. For many people, that break-even age is in their late 70s or early 80s. That means if you live well into your 80s or beyond, you could stand to see higher lifetime benefits overall if you wait to claim and receive those bigger checks. But if you have reason to believe you'll only live until around age 80, you may actually come out ahead by claiming early.
Again, nobody can predict how long they'll live. But take a look at your family history and consider your current health. The last thing you want is to work your entire life and then only have a few short years to enjoy your retirement.
2. You lost your job
Researchers have found a correlation between unemployment rates and the age at which people claim Social Security benefits: States with higher unemployment rates tend to also see higher rates of people claiming their benefits at age 62. In other words, sometimes you have no choice but to claim benefits early just to make ends meet.
Of course, this situation may not be ideal. If you have to rely on Social Security just to pay your bills each month, it probably means you don't have a strong retirement fund. And because claiming benefits early results in smaller checks each month, that's even less you have to live on. However, sometimes you just have to make do with what you have.
Also, just because you're forced to claim your benefits early doesn't mean you can never work again. If you find another job down the road, whether full-time or part-time, you can continue to work while receiving Social Security. Keep in mind, though, that how much you receive in benefits will depend on how much you're earning. In the years leading up to the year you reach your FRA, your benefits will be reduced by $1 for every $2 you earn above $17,640. Then in the year you reach your FRA, you'll see a reduction of $1 for every $3 you earn above $46,920.
If your income is below those limits, your benefits won't be reduced. And even if you do see a reduction in benefits, it's not permanent -- the money you missed out on will be added back into your checks once you reach your FRA.
3. You have a healthy retirement fund
On the other side of the spectrum, maybe you have been diligently saving for decades and don't need the boost in benefits you'd receive by waiting to claim Social Security. If that's the case, you might as well claim early so you can start enjoying your money as soon as possible.
Exactly how healthy does your retirement fund have to be? Start by using the 4% rule -- which basically states that you can withdraw 4% of your savings during the first year of retirement, then adjust that number slightly each year after to account for inflation. So if you're 62 and you have, say, $700,000 saved, 4% of that is $28,000. If that (along with what you'd be receiving in Social Security) is enough to live on during retirement, you may not need to hold out on claiming benefits.
The age at which you claim your Social Security benefits will impact how much you receive for the rest of your retirement, so it's not a decision to be made lightly. And while sometimes patience is a virtue, in some situations, claiming your hard-earned money as soon as possible is the right way to go.
