When you're getting ready to claim Social Security, you owe it to yourself to make sure you won't regret the decision to file for benefits.
Your choice of when to get your first payment is going to have a huge effect on the rest of your retirement and potentially on your surviving spouse as well. Since the decision is important, it's best to make sure you know how to make it wisely.
In particular, if you don't want to risk regretting your Social Security benefits claim, there are three crucial steps you must take before you file for benefits for the first time.
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1. Learn how the benefits formula works
If you don't want to regret claiming Social Security, it's helpful to understand how your benefits will be calculated so you don't shrink them by mistake.
Specifically, you should know that the Social Security Administration calculates a standard benefit for you by adjusting all your wages over your career for inflation, figuring out your average monthly earnings in your 35 highest-earning years, and then giving you benefits equal to a percentage of that average.
Once you understand how the benefits formula works, you can make sure you don't make avoidable errors. Specifically, you can check your earnings record at mySocial Security to ensure accuracy, and you can make smarter choices about how many years to work before quitting.
If you work exactly 35 years, every one of them will be counted in your benefits formula -- including years when you might not have made much money. If you work less than 35 years, years in which you earned $0 would be included in your average wage. And if you work more than 35 years, you can push out your lowest-earning years and prevent them from being part of your average.
Knowing this will help you to decide if you should put in some extra time on the job to raise your average wage before you claim benefits and find yourself facing a smaller check for life.
2. Find out your full retirement age
You should also understand the effect of your filing age if you don't want to regret your decision to start Social Security. That's because the age you get your first payment relative to your full retirement age will determine whether you receive your standard benefit, or whether the standard benefit you're entitled to is increased or decreased.
Your full retirement age (FRA) is assigned to you based on your birth year. If you were born in 1957, it's 66 and six months. If you were born in 1958, it's 66 and eight months. If you were born in 1959, it's 66 and 10 months. And if you were born in 1960 or later, it's 67.
A claim even a month before FRA results in early filing penalties. These penalties reduce your standard benefit by 5/9 of 1% per month if you get your first payment no more than 36 months prior to FRA. If you claim more than three years early, each additional month you receive a payment will further reduce your standard benefit by an additional 5/12 of 1%. The reduction is steep over time, with those who have a FRA of 67 losing 30% of their standard benefit if they start checks as soon as they become eligible at 62. By contrast, a delayed claim raises benefits by 2/3 of 1% per month.
By knowing your FRA, you can compare your desired claiming age to it to see if you'll face penalties or get a benefit boost. You can decide if you would prefer to get more checks but have each one be smaller because you claimed before FRA, or if you'd rather put off the start of your payments in exchange for higher checks later.
3. Coordinate with your spouse
Finally, if you're married, you can make sure you don't regret your Social Security claiming choice by working with your spouse to make a plan to maximize combined lifetime income.
Your decisions about Social Security affect your spouse too. If they want to claim spousal benefits on your work record, you would need to have claimed your own retirement benefit first. A delayed claim on your part could make it impossible for them to get these benefits without waiting years for them. On the other hand, if you're a higher earner, your early claim could reduce the survivor benefits your widow(er) gets.
You should work together to decide who should claim benefits at what age, and to make sure you understand how this decision affects both of you.
By taking these three steps, you can choose the right age to start Social Security, so you aren't left with regrets if your retirement income is less than you'd hoped for.
