Social Security ends up being an important income source for many seniors. And the reality is that even if you save well for retirement, you might still need those benefits to supplement your withdrawals from your savings.
That's why it's important to file for benefits strategically. While your earnings history will play a big role in the monthly benefit you wind up with, your filing age will also determine what that benefit looks like.
File at the right time
You're entitled to your full monthly Social Security benefit at full retirement age, or FRA. FRA is either 66, 67, or somewhere in the middle, depending on when you were born.
Image source: Getty Images.
But you're not required to sign up for Social Security at FRA. You can claim benefits as early as age 62, and you can technically delay your filing indefinitely.
That said, for each month you claim benefits ahead of FRA, they get reduced. And for each month you delay your filing beyond FRA, they increase, up until age 70, at which point there's no financial incentive to hold off on filing any longer.
No matter what age you land on when it comes to claiming Social Security, it's important that you recognize what impact it will have on your benefits. You might think that filing a little early is no big deal, for example, only to realize that doing so causes a more massive hit to your benefits than anticipated.
Similarly, you may not be motivated to delay your filing all that long. But you may be surprised at what a difference holding off makes.
Still not convinced? Imagine you're entitled to a $1,600 monthly benefit at an FRA of 67. Here's what your monthly benefit might look like based on your filing age:
|
Filing Age |
Monthly Benefit |
|---|---|
|
62 |
$1,120 |
|
63 |
$1,200 |
|
64 |
$1,280 |
|
65 |
$1,378 |
|
66 |
$1,493 |
|
67 |
$1,600 |
|
68 |
$1,728 |
|
69 |
$1,856 |
|
70 |
$1,984 |
Calculations by author.
There's not such a huge difference between claiming Social Security at an FRA of 67 versus filing one year early. In that case, you're slashing your monthly benefit by just a little over $100. And if you have a reason to file one year early, so be it.
But notice what happens to your monthly benefit if you file at age 62. Suddenly, you're getting hundreds of dollars less month. That's a hit you may not be able to afford.
Furthermore, you can't help but notice the difference between claiming benefits at age 62 versus holding off until age 70. In this example, you're talking about gaining -- or losing -- $864 a month. That's a gap of more than $10,000 in income a year.
What's the right filing age for you?
It may be the case that claiming Social Security at age 62 or 63 makes sense for you, despite causing your benefits to take a hit by virtue of filing so early. Or, if you're low on savings, you may decide to delay your filing for at least a year past FRA to give your monthly benefit a boost.
There's no right or wrong age to claim Social Security, because that really depends on your financial circumstances and goals. But no matter when you choose to sign up, make sure you first understand what monthly benefit your decision will leave you with, and make certain that's a sum that will allow you to maintain the retirement lifestyle you're hoping for.
