One of the most important retirement decisions you'll make is choosing when to claim Social Security benefits. The age you begin claiming benefits will permanently affect how much you receive each month, so it's not a decision to be taken lightly.
To collect the full benefit amount you're entitled to, you'll need to wait until your full retirement age (FRA) to claim -- which is somewhere between 66 and 67 years old, depending on the year you were born. Claim before that age, and your benefits will be reduced. But delay claiming until after your FRA, and you'll receive extra cash each month on top of your full benefit amount.
Because the age you file for benefits will affect the rest of your retirement, it's important to choose wisely. Once you've decided to start claiming, consider these three things to make sure it's the right time to file.
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1. Consider how working will affect your checks
You can continue to work even after claiming Social Security benefits, but it can affect how much you receive each month.
If you haven't yet reached your FRA, your checks will be reduced by $1 for every $2 you earn over the 2020 limit of $18,240. So, for example, if you're working part-time earning $20,000 per year, that's $1,760 over the annual limit and your checks will be reduced by $880 per year, or around $73 per month.
During the year you reach your FRA, your earnings will be subject to a different limit. In the months leading up to your FRA, your benefits will be reduced by $1 for every $3 you earn over $48,600.
Technically, it is possible to have your entire benefit amount withheld if you're earning significantly more than the annual limit. But these reductions aren't permanent, and once you reach your FRA, your benefits will be recalculated to account for the amount that was withheld. In addition, your benefits will no longer be reduced after your FRA no matter how much you're earning.
2. Think about how your decision will affect your spouse
If you're married, your spouse could potentially earn spousal benefits based on your work record. The maximum amount he or she can receive is 50% of the amount you'll collect by claiming at your FRA. If your spouse is entitled to more than that amount based on his or her own work record, then he or she might not be eligible for spousal benefits.
Even if your spouse isn't eligible for spousal benefits, the age you begin claiming could still have an effect. If you and your spouse are both eligible for benefits, it's a good idea to create a strategy to ensure you're both making the most of your monthly checks. For instance, the lower-earning spouse could claim earlier so you both have some extra cash to spend right away in retirement, then the higher-earning spouse could delay benefits to earn those bigger checks for life.
3. Understand how long you have to change your mind
In general, there are no do-overs once you begin claiming benefits -- which is why it's critically important to make sure you've made the right decision before you start claiming. But life happens, and in some cases, you may decide you've made a mistake. Fortunately, you do have one opportunity to change your mind.
If you've started claiming benefits before you reach your FRA, you have 12 months to withdraw your application if you change your mind. The caveat, though, is that you need to repay all the benefits you've already received so far. If you wait several months or almost a year before you change your mind, that's a hefty chunk of change you'll need to repay.
One other option, then, is to suspend your benefits. Once you reach your FRA, you can temporarily stop collecting benefits until age 70. Then once you turn 70, the Social Security Administration will recalculate your benefit amount and you'll start receiving slightly bigger checks.
Social Security can help supplement your retirement savings, but it's important to make sure you're claiming at the right time. By doing your research before you begin claiming, you can ensure you're doing everything possible to maximize your monthly checks.
