Nearly half of unmarried beneficiaries and close to one-quarter of married couples depend on their Social Security benefits for at least 90% of their income in retirement, according to the Social Security Administration.
Although Social Security can be a complicated topic, it's crucial to at least understand the basics to ensure you're making the best decisions for your future -- especially if you're going to be relying on your benefits to make ends meet in retirement.
However, there's one Social Security question that has close to half of workers stumped. It's an important concept to understand, though, because it will affect your monthly checks for the rest of your life.
The pressing Social Security question workers are facing
Approximately 47% of workers age 45 and older say their biggest retirement question is what age they should begin claiming Social Security benefits, according to a survey from Empower Institute. That's a valid concern, because the age you begin claiming will affect how much you receive every month for the rest of your life. So it's vital to take the decision seriously.
You can begin claiming benefits at age 62 or anytime thereafter. However, if you claim before your full retirement age (FRA) -- which is age 67 for those born in 1960 or later, or either 66 or 66 and a few months for those born before 1960, depending on the exact year you were born -- your benefits will be reduced. For example, if you have a FRA of 67 and you claim at age 62, your benefits will be reduced by 30% for the rest of your life.
If you delay benefits past your FRA, though, you'll receive a bonus amount on top of your full benefit amount. For example, if you have a FRA of 67 and you wait to claim until age 70, you'll receive your full amount plus an additional 24% each month. While you can wait until after age 70 to claim benefits, you won't receive any additional benefits each month by doing so.
Typically, you only have one opportunity to claim benefits. While you can undo your decision after you begin claiming, you have to do so within 12 months of filing, and you also have to pay back all the money you've already received in benefits. That means it's extra important to make sure you're choosing the right age to claim, because it's a decision you'll likely be stuck with for the rest of retirement.
When is the right age to claim benefits?
There's no one-size-fits-all answer as to when you should start claiming benefits. The most popular age to claim is 62, according to a report from the Center for Retirement Research at Boston College, but that doesn't necessarily mean it's always the right age to claim.
Your decision will come down to a few factors, one of which is your life expectancy. In theory, it shouldn't matter when you file for benefits because the amount you receive over a lifetime should be roughly equal. If you claim early, you'll receive smaller checks, but more of them over a lifetime. If you delay benefits, your checks will be bigger, but you'll receive fewer of them.
However, these calculations assume you'll live an average lifespan, or roughly 85 years, according to the Social Security Administration. If you live a longer- or shorter-than-average lifespan, you may be better off delaying benefits or claiming early. You can't predict exactly how long you'll live, of course, but you can take an honest look at your health and family history to estimate it. If you have reason to believe you'll only live into your 70s, for instance, it may be best to claim early. Or if you're in the best shape of your life and everyone in your family has lived into their 90s, it might be wise to delay benefits.
Another factor to consider is how much you'll be depending on your benefits in retirement. If your savings are sparse, the extra money you'll receive each month by delaying benefits could go a long way. But if you have a healthy retirement fund and don't necessarily need the extra cash, you may choose to claim early so you can better enjoy retirement when you're relatively young and healthy.
Determining when to claim benefits is a personal decision that depends on your unique situation, and it's important to take this decision seriously. The age you choose to claim benefits can significantly affect your retirement income, so the more thought you put into it, the better off you'll be in your senior years.