Gearing up for retirement often means having to make a lot of important choices. Where will you live? What will you do? And when should you sign up for Social Security?
You're entitled to your full monthly Social Security benefit based on your personal income history (specifically, your 35 highest-paid years in the labor force) once you reach full retirement age, or FRA. FRA is 67 for anyone born in 1960 or later.
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However, you're allowed to sign up for Social Security as early as age 62. Filing before FRA will result in a reduced monthly benefit for life, but on the plus side, you'll get your money sooner.
You can also delay your filing past FRA and boost your monthly Social Security income in the process. Each year of delayed benefits boosts them by 8%, up until age 70. So if you're looking at an FRA of 67, you have the potential to lock in a monthly benefit that's 24% higher if you sign up at 70.
Clearly, filing early, late, or even on time has serious consequences. Or does it?
Near-retirees are often told to think carefully before committing to a Social Security filing age. But in reality, your filing age may not matter as much as you think it does.
When you're anticipating an average life expectancy
Here's a lesser-known fact about Social Security. The program is actually designed to pay you the same total benefit regardless of your filing age if your life expectancy is average.
You might receive a higher monthly benefit if you sign up for Social Security at FRA or beyond. And you might receive less money on a monthly basis if you claim Social Security at 62. But all told, on a lifetime basis, things should even out no matter when you file if you live an average lifespan.
The reduction in monthly payments you face by filing early will generally be offset by the larger number of individual payments you receive. And the higher monthly payments you'll get with a delayed filing will be offset by the fact that you've waited longer to start getting your money.
This logic, however, only applies to people whose life expectancy is average. It's when you expect to live a shorter or longer life that you really need to put a lot of thought into your Social Security filing.
If your health is poor and you're unlikely to live as long as the typical retiree, then an early filing often makes the most financial sense. And if your health is great and you have a family history of longevity, then a delayed filing often makes sense from a lifetime income perspective.
But if you anticipate living as long as the typical American, then you may not need to stress quite as much over when to take Social Security, since things are likely to even out. This isn't to say that you should choose a random filing age out of a hat. Rather, you may not need to put quite so much pressure on yourself if things are likely to even out in the long run.
Retirement comes with a host of tough decisions you might need to make, like what Medicare plan to choose and whether or not to downsize. You don't need to add more stress to your plate by agonizing over your Social Security filing decision when at the end of the day, it may not actually matter all that much.
