The 1 Retirement Decision You Don’t Want to Botch

It's a big one, and the wrong choice could cost you thousands of dollars over the course of your retirement.

Maurie Backman
Maurie Backman
Jul 15, 2019 at 6:17AM
Investment Planning

Retiring isn't something you just snap your fingers and do. There are lots of decisions that go into it. For example, when will you retire? Where will you live during that time? What Medicare plan will you sign up for, and will it make sense to keep owning a home?

These are just some of the decisions you'll need to nail down as you navigate your golden years. But if there's one decision you really can't afford to falter on, it's the age at which you choose to start collecting Social Security.

Your age matters for Social Security

Your Social Security benefits are calculated based on how much you earn during your highest-paid 35 years in the workforce. The age at which you file for benefits, however, will dictate whether that number goes up, goes down, or stays the same.

Older man sitting on park bench with thoughtful expression

IMAGE SOURCE: GETTY IMAGES.

If you file for Social Security at your full retirement age, or FRA, you'll get the exact monthly benefit your earnings record entitles you to. That age is as follows:

Year of Birth

Full Retirement Age

1943-1954

66

1955

66 and 2 months

1956

66 and 4 months

1957

66 and 6 months

1958

66 and 8 months

1959

66 and 10 months

1960

67

DATA SOURCE: SOCIAL SECURITY ADMINISTRATION.

Filing outside of FRA can alter your monthly benefit payments. You're allowed to sign up for Social Security as early as age 62, but for each month you begin collecting benefits ahead of FRA, you'll lose a portion, and most of the time on a permanent basis. (The only time that won't happen is if you undo your benefits application and repay the amount you collected within a year.) Meanwhile, if you delay benefits past FRA, you'll boost them by 8% a year up until you turn 70, and that increase is guaranteed to remain in effect for the rest of your life.

That's why it's so important to choose the right age to sign up for benefits. If you file too early, you'll risk slashing your benefits permanently, and that could really hurt you if you don't have a lot of money in the form of personal savings, or another income source at your disposal during retirement. But if you wait too long to file, you could end up losing out on lifetime benefits despite having grown those payments on a monthly basis.

How might that happen? Let's imagine you're entitled to $1,500 a month in benefits at a full retirement age of 67. Waiting until 70 will increase each payment you collect to $1,860, but you'll collect 36 fewer payments, since those benefits won't start for another three years. If you wind up living until age 82-1/5, you'll end up with a total of $279,000 from Social Security in either scenario. But if you pass away any sooner than that, you'll actually lose money by virtue of having waited. Therefore, when deciding when to take Social Security, be sure to factor your health into the equation, because as much as you may want to increase your monthly benefits, your goal should ultimately be to increase your lifetime benefits.

What's the right decision for you?

The decision to file for Social Security isn't an easy one. You'll need to take your health and associated life expectancy into account, but you'll also need to ask yourself how badly you need that money. If you're struggling financially, it could pay to file for benefits sooner, even if that means slashing them to some degree in the process. If you're doing well enough without those benefits, growing them could be your best bet. Put plenty of thought into that decision, and sync up with your spouse if you're married to get his or her input as well. With any luck, you'll make the right choice.