Over 3.5 million people will turn 62 and become newly eligible for Social Security in 2021, and plenty of other 60-somethings who haven't begun claiming yet will have to decide if it's the right time to start benefits. It's not exactly a straightforward decision, so here are a few questions you may want to ask yourself before making up your mind.
How old will I be?
You can't claim Social Security retirement benefits until you reach 62, so you must have been born in 1959 or earlier in order to claim benefits in 2021. But it's not quite as simple as just making sure you're eligible. The age you begin benefits affects how much you receive per check.
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Everyone has a full retirement age (FRA) assigned to them, based on their birth year. For those born between 1943 and 1954, that's 66. Then, it rises by two months every year thereafter until it reaches 67 for those born in 1960 or later.
Claiming benefits under your FRA reduces the size of your checks, while delaying benefits increases your checks. If you have an FRA of 66 and begin benefits at 62, your checks will only be 75% of what they would've been if you'd waited until your FRA to start claiming. If your FRA is 67, you'd only get 70% of your scheduled benefit by starting at 62.
You may delay retirement benefits as long as you'd like, but it only makes sense to do so up until 70, when you become eligible for your maximum benefit. That's 124% of your scheduled benefit per check if your FRA is 67 or 132% if your FRA is 66.
For those whose FRAs fall between 66 and 67, the effect your starting age will have on your checks will also fall somewhere in between the figures above. You can figure out how much you're entitled to per month at different ages by creating a my Social Security account.
How long do I expect to live?
If you want the most Social Security benefits over your lifetime, you have to choose your starting age carefully based on your life expectancy. Delaying benefits usually means more money overall for those who live long -- into their late 80s or beyond. But if you have a terminal illness, it doesn't make sense to delay benefits because you may not live long enough to claim your larger checks -- unless you have family members who'll be relying on survivor benefits based on your work record.
Obviously, no one can know exactly how long they're going to live, so you have to make your best guess. Or you could hedge your bets and choose a starting age somewhere in between 62 and 70.
You may have to base your decision in part upon your retirement savings, as well. Even if delaying benefits may give you more money overall, that doesn't mean you'll be able to afford to do so. You might need to start benefits early to supplement your personal savings if you hope to retire soon.
Will I still be working?
If you claim Social Security while you're still working and under your FRA, your benefits will become subject to the Social Security Earnings Test. If you'll be under your FRA for all of 2021, you'll lose $1 for every $2 you earn over $18,960. Those who will reach their FRA in 2021 will lose $1 for every $3 they earn over $50,520 if they reach this amount before their birthday.
This money isn't gone forever. The Social Security Administration recalculates your benefits at your FRA to account for the money it withheld, and your future checks will be larger. But if you don't need your benefit checks right away, it might make more sense to delay Social Security until you're no longer working so you don't have to bother with all of this.
How will claiming benefits affect my annual income?
The IRS can tax your Social Security benefits if your combined income -- your adjusted gross income (AGI) plus nontaxable interest and half of your Social Security benefits -- exceeds certain thresholds. Individuals with combined incomes greater than $25,000 could owe taxes on up to 50% of their benefits, as could married couples whose combined income exceeds $32,000. Individuals with combined incomes greater than $34,000 and married couples with combined incomes greater than $44,000 could owe taxes on up to 85% of their benefits.
That doesn't mean you're guaranteed to pay taxes on that much. The formula for calculating taxes on Social Security benefits is a bit complicated. Here's a primer if you want to learn more. Some states tax Social Security benefits, as well, but each has its own formula for determining when benefits are taxable and how much you could owe.
If you're working and claiming Social Security, there's a greater chance you could owe taxes on your benefits, so this is another reason you may want to consider delaying them until you're fully retired. But if you're only working part-time, this might not be an issue.
No year is inherently a good or bad one in which to begin Social Security. It depends on individual circumstances. If you planned to start benefits in 2021, answer the above questions first to make sure it's the right decision for you, and review everything discussed here one more time before you file your application. Once you start claiming, it's not easy to change your mind, so it's best to make sure you make the right decision the first time.
