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Does It Really Matter When You Claim Social Security Benefits?

By Christy Bieber – Sep 13, 2020 at 8:31AM

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Sometimes it might, but it can be really hard to predict when that's the case.

When should you take Social Security? There are so many different answers to this question. Benefits can be claimed as early as 62 or as late as 70, and there are pros and cons for claiming early as well as for waiting. 

If you're stressing about when you should start your benefits, there's something you should know: It theoretically doesn't matter because of the way the system is designed.

Older woman sitting on couch looking at check.

Image source: Getty Images.

You're supposed to get the same lifetime benefits no matter when you claim them

The age when you first claim Social Security benefits shouldn't make much of a difference, in theory, because the formula used to determine your benefits is designed to give both early and late claimers an equal share. 

Early filing penalties reduce your benefit for every month you claim ahead of full retirement age (FRA). Since an early claim reduces the size of your checks by around 6.7% for each of the first three years before FRA and an additional 5% for each year prior, starting your benefits five years early would result in a 30% reduction of your standard benefit. Although you'd get more checks than someone who waited to claim, they'd be for a much lower amount. 

On the other hand, waiting longer to start retirement benefits not only enables you to avoid early filing penalties, but also entitles you to delayed retirement credits for every month you wait between full retirement age and 70. These credits can result in an 8% annual bump in monthly benefit checks, so a long delay before starting benefits means you get far fewer checks but each will be much higher when they start coming. 

This system was designed based on actuarial predictions of how long people will live. In theory, if you wait to claim benefits, you'll live just about long enough for your higher checks to cover the losses from the forgone payments but not a lot longer. If that happens, the age when you claimed benefits won't have mattered much at all. 

It's hard to predict when you'd be better off claiming early or waiting

The Social Security formula may work in the aggregate to ensure that benefit payouts equalize for early and late filers. But on the individual level, there are still many situations when people end up better off based on early or late claiming. 

It would be nice to know if you're going to outlive your projected life span and end up with thousands more in Social Security income if you wait. It would also be nice to know if you'll pass away before you'd break even, so you don't leave money on the table by delaying.

But no one can tell the future, so you can't know which situation will apply to you. While you can make an educated guess to try to game the system and get more benefits, you could also simply accept that it's designed to equalize out and just claim your benefits based on when you want to retire and whether you need Social Security benefits to do so. 

This may mean you miss out on some income if you retired at a suboptimal time. But if you have sufficient retirement savings to supplement Social Security, hopefully that won't matter much. 

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