Your 4-Step Guide to Deciding When to Claim Social Security

When should you claim Social Security benefits? The answer to this question can shape your retirement. It will affect how much money you have to live on over your later years, and it could also inform your choice about when to retire.

It can be more complicated than you'd think to figure out the right time to begin receiving retirement benefits. To ensure you make the right decision, you'll want to take these four important steps. 

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1. Figure out your full retirement age

The first step in deciding when to claim Social Security is to figure out your full retirement age (FRA). That's the age you become entitled to receive your standard benefit. The table below shows your FRA based on the year you were born. 

Table source: Social Security Administration

Although you are allowed to begin your retirement benefits starting at age 62 and may put off claiming them until 70, you must claim at full retirement age to receive an unadjusted primary insurance amount (PIA). That standard benefit is calculated based on average earnings in the 35 years your pay was highest (after adjusting for inflation). If you claim before or after your FRA, that standard benefit will shrink or grow. 

Since the age you claim, relative to FRA, ultimately controls the amount of money you receive from Social Security, it's important to find out when your full retirement age is as the first step in deciding when to start benefits. 

2. Calculate your break-even point if you claim at different ages

Next, consider how much Social Security income you would receive if you claimed at different ages, so you can decide what makes the most sense for you.

Claiming before FRA shrinks your benefit by 5/9 of 1% for each of the first 36 months and 5/12 of 1% for any prior month you receive benefits. Claiming after increases it by 2/3 of 1% per month. So, you'll get much smaller checks if you start them before full retirement age, but you'll receive more checks. And if you delay, you'll get fewer checks but larger ones.

To benefit from a delayed claim, you must live so long that the extra income you get later covers the foregone income from delaying. Figuring out how long that will take involves calculating your break-even point. Here's how you do it:

• Determine how much Social Security income you'd receive at different claiming ages. For example, you could compare how much you'd get each month at 62 versus 67, or at 64 versus 70. Do that by applying the penalties mentioned above, or by signing into mySocialSecurity and checking estimates for benefits at different ages. For example, if your FRA was 67 and your standard benefit was $1,500, claiming at 66 would result in 12 reductions of 5/9 of 1%. You'd shrink your benefit by 6.7%, down to $1,399.50. On the other hand, claiming at 68 would result in 12 increases of 2/3 of 1%, so you'd increase your benefit to $1,620. 
• Calculate how much income you'd miss. If you're deciding between claiming at 66 versus 68, you'd miss two years of benefits. Since you'd be getting the reduced $1,399.50, you would miss a total of $33,588 in Social Security income. 
• See how much your check grows due to waiting. By waiting from 66 to 68, you would increase your check from $1,399.50 to $1,620, so you would get $220.50 more per month.
• Determine how long it will take for the missed income to be made up. If you must make up for $33,588 of foregone income by getting an extra $220.50 a month, it would take you 152 months or 12.6 years. 

Now you know when you would break even after delaying a benefits claim. If you live beyond that time, you'll keep getting the extra funds, so delaying is the right choice as you end up with more lifetime Social Security income. If you pass away before breaking even, your lifetime benefits are smaller than they'd have been had you claimed sooner.

3. Consider your health

Once you know your break-even point, consider your health situation to determine if you are likely to live long enough that a delayed Social Security claim makes sense.

If you're in poor health and not likely to last 12.6 years (or whatever your specific break-even point is), an earlier claim is probably best. However, there is one caveat. Your widow(er) gets to keep the higher of the two benefits either of you were receiving after you pass. So, if you've shrunk your benefit, you'll reduce their survivor benefits. This is a big issue if you were the higher earner and thus bringing more Social Security income into the house.

If you're worried about your spouse's financial security, don't reduce their survivor benefits with an early claim, even if you are in poor health and unlikely to live very long.

4. Evaluate your priorities for retirement

Finally, you should think about your retirement goals.

If you want to maximize lifetime Social Security income, it may make sense to play the odds and assume you'll outlive your life expectancy. That's because people are now living longer than they were when Social Security's benefits and penalties system was designed. But if your goal is to retire early and claiming Social Security is key to doing that, an early claim could be best -- even if it means a smaller monthly benefit and less lifetime income.

Taking these four steps can help you make the right choice for your situation so you don't regret your Social Security claim.