It's getting more and more challenging to save for retirement, and many workers head into their senior years depending on Social Security benefits to make ends meet.
However, the average retiree only collects $1,657 per month, according to the Social Security Administration, which adds up to just under $20,000 per year. That means if you expect to rely on your benefits in any capacity in retirement, it pays to make the most of them.
The decisions you make will directly affect the amount you receive each month. And there's one choice, in particular, that could cost roughly $800 per month -- claiming early.
How claiming early affects your benefits
You can file for benefits at 62 years old or any age thereafter. But to earn the full benefit amount you're entitled to based on your earnings, you'll need to wait until your full retirement age (FRA) -- which is between ages 66 and 67, depending on the year in which you were born.
If you file before you reach FRA, your monthly payments will be permanently reduced. On the other hand, if you delay Social Security past your FRA (up to age 70), you'll receive a bonus on top of your full benefit amount. In some cases, the difference between claiming at 62 and 70 could amount to several hundred dollars per month.
For example, say your FRA is 67 years old. If you were to begin claiming at that age, you'd receive $1,600 per month.
If you were to file at age 62, your benefit amount would be cut by 30%, leaving you with just $1,120 per month. But if you were to wait until age 70 to begin claiming, you'd collect your full benefit amount plus an extra 24%, or $1,984 per month. That comes out to a difference of $864 per month.
When is the best age to file for Social Security?
Delaying Social Security is one of the best ways to increase the size of your monthly payments, but it's not the right decision for everyone.
In theory, the total amount you receive over a lifetime should be roughly equal, regardless of when you started claiming benefits. By filing early, you'll receive more checks in total, but each one will be smaller. Delay benefits, and you'll collect larger payments, but fewer of them over a lifetime.
However, living a longer- or shorter-than-average life can affect these calculations. To break even, you'll likely need to live into your 80s. If you live longer than that, you may receive more over a lifetime if you delay Social Security. But if you live a shorter-than-average life, you could come out ahead by claiming earlier.
Of course, no one can predict exactly how long they'll live. But if you're battling health issues or have other reason to believe you may not live into your 80s or beyond, claiming early may be worth considering.
Deciding at what age to begin claiming Social Security can be challenging, but it's one of the most important retirement decisions you'll make. By considering the pros and cons of all your options, you can head into retirement as prepared as possible.