Signing up for Social Security is not a decision to take lightly. Those benefits will most likely end up playing a crucial role in helping you finance your retirement, so it's important to claim them at just the right time.
Of course, there's no such thing as a universal right or wrong age to file for benefits. The key, rather, is to make sure that by the time you're ready to sign up, you're equipped with the right information. Here are a few signs that you're in a good place to make that call.
1. You know your full retirement age
Your Social Security benefits are calculated by taking your average monthly wage, adjusted for inflation, over your 35 highest-paid years in the workforce, and then inputting that figure into a special formula to determine your monthly benefit. You can begin collecting that full benefit once you reach full retirement age, or FRA.
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FRA isn't the same for everyone; it varies based on the year you were born. This table will help you determine what FRA looks like for you:
|
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 or after |
67 |
Data source: Social Security Administration.
You don't necessarily need to sign up for benefits at FRA; you can do so beginning as early as 62 or as late as age 70. But you should know your FRA before you file.
2. You know what monthly benefit you're entitled to
The average senior on Social Security today collects about $1,500 a month. But that doesn't mean your monthly benefit will be anywhere close to that amount. If you were a lower earner during your career, your benefit might be less, and if you were a higher earner, it could be much more generous.
The best way to determine what monthly benefit you can look forward to in retirement is to consult your annual earnings statements, which will estimate your benefits for you. Once you turn 60, those statements will start arriving by mail, so be sure not to toss them out. If you can't find your latest paper earnings statement, you can access it by creating an account on the Social Security Administration's website (which you'll need to sign up for benefits online anyway).
3. You understand what filing at different ages means for your benefits
FRA is when you can collect your monthly benefit in full, but for each month you sign up for Social Security before FRA, that benefit gets reduced on a permanent basis. Specifically, you'll lose 6.67% of your benefit per year for the first three years you file ahead of FRA, and then an additional 5% for each year after that. Now, the maximum number of years you can file early is five, assuming you have an FRA of 67. But if you do, know that you'll be looking at a 30% reduction in benefits.
On the other hand, for each year you delay your filing past FRA, your benefits increase by 8%. This incentive runs out by age 70, but with an FRA of 67, you have the potential to boost your benefits by 24%.
Are you ready to file for benefits?
The filing age you land on will dictate how much monthly income you get from Social Security for what could be many, many years. Make sure you fully understand how the program works before signing up so you make the right decision.
