When it comes to claiming Social Security benefits, it's important to have a strategy for when to claim. The age at which you start claiming will affect how much you receive each month for the rest of your life, so it's not a decision to be taken lightly.
In order to receive the full amount you're entitled to each month, you'll need to wait until your full retirement age (FRA) to file for benefits. For those born in 1960 or later, your FRA is age 67. And for people born earlier than 1960, your FRA is either age 66 or somewhere between age 66 and 67.
If you claim earlier than your FRA (as early as age 62), you'll receive a reduction in benefits of up to 30%. But by waiting until after your FRA to claim, you'll receive extra money each month to make up for the time you weren't receiving benefits. You can begin claiming at any age after 62, but there's no financial incentive to delay past age 70.
Because so many workers are falling short on their retirement savings (roughly half of baby boomers don't have anything saved for the future, a report from the Insured Retirement Institute found), it's often recommended that workers wait until age 70 to begin claiming Social Security benefits. Sometimes, that's a wise move; you'll receive extra money each month for the rest of your life, which can go a long way when your savings are sparse. However, there are some instances when it's more beneficial to claim sooner rather than later.
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1. You're in poor health and won't spend several decades in retirement
It's difficult -- if not impossible -- to predict your life expectancy, and it's also not the most pleasant topic to think about. But if you don't consider how long your retirement will last, you may end up selling yourself short if you wait to claim Social Security.
Although you'll be receiving more money each month by waiting until age 70 to claim, you're still missing out on years' worth of benefits. If you spend several decades in retirement, you'll eventually receive more over a lifetime if you claim later and earn those bigger checks. But if you only live until, say, your mid-70s, you may be better off claiming early so you have more years to enjoy your money.
Your "breakeven" age is the age at which you come out ahead by delaying benefits rather than claiming early, and it can help you decide what age is best to claim.
For example, say your FRA is age 67, and you'd be receiving $1,500 per month by claiming at that age. If you were to claim at 62, your benefits would be reduced by 30%, leaving you with $1,050 per month. Wait until age 70, though, and you'd receive a 24% bonus, or $1,860 per month. Here's what your total lifetime benefits would look like at various ages:
| Age | Lifetime Benefits by Claiming at 62 | Lifetime Benefits by Claiming at 67 | Lifetime Benefits by Claiming at 70 |
|---|---|---|---|
| 62 | $0 | $0 | $0 |
| 67 | $63,000 | $0 | $0 |
| 70 | $100,800 | $54,000 | $0 |
| 75 | $163,800 | $144,000 | $111,600 |
| 80 | $226,800 | $234,000 | $223,200 |
| 85 | $289,800 | $324,000 | $334,800 |
Data source: Author's calculations.
In this example, if you were to wait until age 70 to claim, you'd need to live until around age 85 or beyond to receive more benefits over a lifetime than if you had claimed at 62 or 67. If you're in poor health and don't expect to live that long, you may come out ahead financially by claiming earlier.
2. You need the money sooner rather than later
Approximately 43% of retirees said they were forced to retire earlier than they had planned, most often as a result of health issues or job loss, according to a report from the Employee Benefit Research Institute.
If you don't have enough savings to live on but you were forced into an early retirement, you may have no choice but to claim Social Security early just to pay the bills. Even if you do have some retirement savings, if you wait until age 70 to claim benefits, you could end up draining your retirement fund if you try to live on your savings alone until then.
Sometimes, even those with robust retirement funds may choose to claim early so they can take advantage of the extra cash while they're still relatively young and healthy. If you have big plans to travel or pick up expensive new hobbies, the extra money you receive from Social Security can help make those dreams a reality. Although you'd receive more by waiting to claim, you'll likely be physically healthier in your 60s than in your 70s -- and claiming early can help you afford your ideal retirement lifestyle while you're young enough to enjoy it.
3. Your spouse is also eligible for benefits
If you and your spouse are both eligible to receive Social Security benefits, it pays to develop a strategy for when you'll both claim.
One strategy is for the lesser-earning spouse to claim early, so you'll have some extra money to spend in your early years of retirement. Then the higher-earning spouse will claim later to earn a boost in benefits that will last the rest of his or her life.
A couple of other factors to consider include age and whether you both want to retire at the same time. If your spouse is older by several years and you want to retire together, it might make sense for you to claim earlier while your spouse waits until FRA or beyond. Regardless of the strategy you choose, it's important to think about how you can both maximize your retirement income while still enjoying your golden years to the fullest.
Deciding when to claim Social Security isn't as straightforward as it may seem, and having a strategy behind your decision can help you make the most of your money. Sometimes waiting until age 70 to claim is the best decision, but it's not right for everyone. Even though you won't receive as much every month by claiming earlier, for some people, it can lead to a more enjoyable retirement.
