Social Security is flexible in that you don't have to sign up for benefits at a single universal age. Rather, you can claim benefits as early as age 62 or delay your filing all the way until age 70. In fact, you can technically claim benefits after turning 70, but doing so makes no financial sense.
Of course, that flexibility can make your filing decision a lot trickier, because you'll really need to think things through to ensure that you're claiming benefits at the right age. Here are three questions that will help you navigate that choice.
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1. Have I reached full retirement age?
The Social Security benefit you collect in retirement will be based on your earnings history, and you can claim it in full once you reach full retirement age, or FRA. FRA is based on when you were born, and you can consult this table to see what yours is:
|
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.
If you file for Social Security before FRA, your monthly benefit will be permanently reduced for each month you claim it ahead of schedule. For example, if your FRA is 67 and you sign up for Social Security at 66, you'll see your benefit shrink by 6.67%. And if you sign up at 62, you'll lose 30% of your benefit.
If you don't want to face a reduction, you'll need to wait until FRA to start receiving Social Security paychecks. And if you want an even higher benefit, you can delay your filing past FRA.
2. Do I have a decent-sized nest egg?
The more savings you have, the more leeway you should have to claim Social Security early. Say you're sitting on $200,000 in your IRA or 401(k) plan. That's actually not a lot of money in the course of what could be a 20- or 30-year retirement. And in that case, filing for benefits ahead of FRA could mean winding up cash-strapped.
But let's say you're sitting on a $1 million nest egg. That changes things.
Assuming you're not planning to live a ridiculously extravagant lifestyle, $1 million in savings is a nice chunk of money to get you through your senior years. And in that case, you may feel more comfortable claiming Social Security early and collecting a lower benefit each month.
3. What other income sources do I have?
Your retirement plan may not be your only income source outside of Social Security. You may be entitled to a pension, or you might have partial ownership of a family business that pays you some money every month or quarter.
Furthermore, you may decide that come retirement, you'll rent out your basement or a portion of your home for extra income. All of these factors should go into your Social Security filing decision, so think about the different retirement income streams you'll either be entitled to or can carve out for yourself.
The decision to claim Social Security isn't an easy one, but it's important to approach your filing with confidence. Answering these three questions could make your choice a lot less difficult.
