The decision to sign up for Social Security is a big one. You're allowed to start collecting benefits once you turn 62, and while you technically don't have to file by age 70, that's generally considered the latest age to do so.
If you're thinking of signing up for benefits, it's crucial to make sure you're really ready. And if these things apply to you, then unfortunately, you aren't.
1. You don't know your full retirement age
Your monthly Social Security benefit will be calculated based on your personal earnings history -- specifically, your average monthly wage during your 35 most lucrative years of earnings. But you're not entitled to that benefit in full until you reach full retirement age, or FRA.
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Claiming benefits without knowing your FRA is akin to flipping a coin and hoping it lands on the side you've called out when there's a huge sum of money on the line. A better bet is to consult this table to find out what your FRA is, because only then can you even begin to consider signing up for Social Security.
|
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 later |
67 |
Data source: Social Security Administration
2. You don't understand the implications of filing at different ages
You may be aware of the fact that you can claim your benefits before FRA, or sign up for them afterward. But if you don't know what that will mean as far as your monthly payout goes, then that basic information may be somewhat meaningless.
So here's the scoop. For each month you claim benefits ahead of FRA, they're reduced on a permanent basis. Here's how that will specifically break down year by year.
|
File This Many Years Early |
And Lose This Much of Your Benefit |
|---|---|
|
1 |
6.67% |
|
2 |
13.34% |
|
3 |
20% |
|
4 |
25% |
|
5 |
30% |
Data source: Social Security Administration
Meanwhile, for each year you delay benefits, they'll increase by 8%, up until age 70, at which point you can't accrue more credits for postponing your filing. As such, if you have an FRA of 67 and hold off on claiming benefits until your 70th birthday, you'll score a 24% increase for life.
3. You haven't consulted with your spouse
The age at which you sign up for Social Security could impact your spouse's finances throughout retirement. For example, if your spouse outlives you and collects a survivor benefit, that sum will be based on your monthly benefit, and the higher it is, the more money your spouse will be entitled to.
You can also work with your spouse to file strategically if you're each entitled to a monthly benefit based on your own work record. For example, you may decide to have one of you file early or on time to get some income, while the other delays his or her benefit to grow it. But it's imperative that you have that conversation before rushing to sign up.
Filing for Social Security before you're ready could be disastrous. If any of the above items apply to you, don't claim benefits just yet. Instead, take the time to do your research and have the right conversations so you don't wind up regretting your decision big time.
