When it comes to planning for retirement, one of the most important moves you'll make is choosing when to claim Social Security benefits.
Choosing when to file for benefits is a critical decision that will affect your monthly retirement income for the rest of your life. While there's no universal answer as to what is the best age to begin claiming, it's important to take this decision seriously. So before you begin claiming, ask yourself these three questions to ensure you're ready to take this major retirement step.
1. How much do you have in savings?
Unless you have a pension or other source of income, you'll likely be relying on Social Security benefits and your personal savings to make ends meet in retirement. So the amount you have saved will affect the age you should file for benefits.
The earlier you claim benefits, the smaller your checks will be. If you claim as early as possible at age 62, your monthly payments will be reduced by up to 30%. But if you wait until age 70 to claim, you could receive up to 32% extra each month in addition to your full benefit amount.
If you know you'll be depending on Social Security for the bulk of your retirement income, you may be better off delaying benefits to earn those larger checks. On the other hand, if you have a healthy retirement fund and won't be as dependent on your benefits, you may choose to claim Social Security early despite collecting smaller checks.
2. How long do you plan to work?
You don't necessarily have to retire and claim benefits at the same time, but the two often go hand-in-hand. So the age you file for benefits may depend on when you choose to retire.
While it's a good idea to think about what age you'd like to retire, it's more important to think about what age you realistically expect to retire. Nearly 40% of retirees say they left their job earlier than they'd planned, according to a report from the Aegon Center for Longevity and Retirement. Among those who retired early, roughly one-third did so because of health issues, and more than one-quarter said it was a result of job loss.
If your retirement plan hinges on being able to work until age 70 to maximize your Social Security benefits, be sure you have a backup plan in case you're forced into an early retirement. Or, if you're planning on retiring in your early 60s, think about whether you can survive on smaller checks each month if you claim benefits as soon as you retire.
3. When will your spouse begin claiming?
If you and your spouse are both entitled to Social Security benefits, you may want to have a claiming strategy in place. The two of you may decide to retire and claim benefits at the same time, or one of you may claim before the other.
One common strategy is for the lower-earning spouse to claim benefits early while the higher-earning spouse waits a few years. That way, the two of you can have some extra income early in retirement thanks to the lower-earning spouse's benefits. But because the higher-earning spouse is delaying benefits, that will also result in larger checks later in retirement.
It's also a good idea to consider both your and your spouse's life expectancy when claiming. If one spouse passes away first, the other can generally receive 100% of the deceased person's Social Security benefit amount in survivors benefits. So it could be wise to delay benefits if you think your spouse may live longer than you. Then, if you pass away first, your spouse will receive larger checks.
Deciding when to file for Social Security benefits is an important factor when planning for retirement. By asking yourself a few important questions first, you can be sure you're claiming at the best age to make the most of your monthly checks.