Even if you manage to kick off retirement with a decent chunk of savings, you may end up relying heavily on Social Security at some point or another during your senior years. And that's why it's so important to file for benefits at the right age.
The monthly benefit you're entitled to during retirement is calculated based on your wage history -- specifically, the amount of money you were paid during your 35 most profitable years on the job. But whether you get that benefit in full depends on when you sign up for it.
You're entitled to your complete monthly benefit upon reaching full retirement age, or FRA. But many people don't know their FRA and wind up claiming Social Security prematurely as a result. Doing so could slash your benefits substantially, so it's crucial that you know your FRA before signing up.
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Your filing age affects your benefits
The earliest age you can claim Social Security is 62. Meanwhile, there's technically no such thing as the latest age to file for benefits, because you're not compelled to sign up at any given point. But financially speaking, there's no reason to delay your filing past age 70.
Smack in the middle of that range is full retirement age, and you can consult this table to see what yours looks like:
|
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.
For each month you claim benefits ahead of FRA, they get reduced by a certain percentage. And so the earlier you sign up, the more of a hit they take. Filing for Social Security at age 62, for example, with a FRA of 67 will result in a 30% reduction in benefits -- and generally a permanent one at that. (Technically, there is such a thing as undoing your filing and getting a second chance to claim benefits. Doing so requires you to act quickly and pay all of your collected benefits back, so it's not feasible for everyone.)
Meanwhile, for each month you delay your Social Security filing beyond FRA, your benefits increase. If your FRA is 67 and you hold off until age 70, which is when delayed retirement credits stop accruing, you'll boost your benefits by 24% -- also on a permanent basis.
Now you may decide that filing for Social Security before FRA is the right choice for you. Or, you may decide to grow your benefits to make up for a 401(k) or IRA balance you're not super thrilled with. But either way, you really can't make a sound filing decision without knowing what your FRA looks like.
When should you sign up for Social Security?
The age you land on for claiming benefits may hinge on a number of factors:
- Your health going into retirement (if you don't expect to live a long life, filing earlier could make sense)
- The amount of retirement savings you have
- Your anticipated retirement expenses and goals
To be clear, filing at FRA isn't necessarily the right choice. But it's essential that you know that number before making any decisions on the Social Security front. And that's why it's so important to keep this table on hand. Not only might you need it, but if you're married, your spouse might need to refer to it as well as you decide how to navigate the filing process jointly.
