Chances are, Social Security will serve as a major income source for you once you enter retirement, so it's essential to claim benefits at the right time. You're allowed to sign up for benefits once you turn 62, but you won't be entitled to your full monthly benefit, based on your earnings history, until you reach full retirement age (FRA). FRA is either 66, 67, or 66 and a specific number of months, depending on when you were born. There's also the option to delay benefits past FRA, and for each year you do, you'll boost them by 8%.
Because you get so many choices with regard to claiming benefits, it's best to develop a strategy that works well for you. But be careful when employing the following tactics, because if you're not careful, they could end up working against you.
1. Getting your money before Social Security disappears
Many seniors rush to claim Social Security at age 62, so much so that it's the most popular age to file for benefits. But the downside of doing so is reducing your benefits substantially on a lifelong basis.
If you file for Social Security at 62 with an FRA of 67, your benefits will take a 30% hit. But if you're thinking you ought to claim benefits as early as possible so you get some of your money before Social Security disappears, you could wind up sorely unhappy with that choice.
Despite rumors that Social Security is on the verge of bankruptcy, the program is by no means in danger of going away. Right now, seniors are potentially looking at a 20% reduction in benefits starting in 2035 if the program's financial problems aren't addressed, but there's a lot of time between now and then to devise a solution, and lawmakers are certainly invested in finding one. As such, claiming benefits early because of rumors could cause you to lose out on a substantial amount of income in your lifetime.
2. Delaying benefits a really long time
Delaying benefits past FRA is a smart idea, especially if you're low on retirement savings and expect to depend heavily on Social Security to pay the bills. After all, the 8% boost you snag annually is guaranteed and remains in effect for the rest of your life, so it's certainly worth going after. But while it's smart to delay benefits until age 70, waiting past that point doesn't make financial sense.
Once you turn 70, you can't accrue the credits for waiting that boost your benefits, so you might as well claim your money right away. In fact, if you wait too long, you'll actually end up losing out on income that could've been yours. The Social Security Administration will pay you up to six months of retroactive benefits, which means that if you file after turning 70-1/2, you'll effectively forfeit money for no good reason.
3. Delaying spousal benefits to snag a boost
Even if you never worked and therefore aren't entitled to Social Security benefits based on your own earnings record, if you're married to someone, or divorced from someone, who's entitled to benefits, then you get to claim up to half the amount that person is entitled to in the form of a spousal benefit. In other words, if your spouse is eligible for a $2,000 monthly benefit, you're entitled to $1,000 a month.
Now when claiming spousal benefits, you're allowed to file beginning at age 62, just like with regular benefits. But if you start collecting spousal benefits before your own FRA, you'll reduce them in the process, so you may want to hold off until that point -- but not beyond. While it often pays to delay regular Social Security benefits to boost them by 8% annually, as just discussed, you can't grow a spousal benefit. As such, there's no sense in holding off on claiming them past FRA.
It's wise to put some thought into when you'll file for Social Security, but make sure your ideas will work out as well in practice as they do in theory. The more you read up on Social Security, the better-equipped you'll be to devise a strategy that puts more money in your pocket.