Many seniors end up struggling with their Social Security filing decisions. And that's understandable.
While your personal wage history will be a big factor in determining what sort of monthly benefit you get from Social Security, your filing age will play a role as well. So it's important to get that decision right. But if you make these big mistakes, you might regret your filing choice -- and struggle throughout retirement because of it.
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1. Not waiting until full retirement age to file when you're short on savings
Full retirement age, or FRA, is when you're entitled to your complete monthly Social Security benefit based on your income history. If you were born in 1960 or later, FRA kicks in at 67.
You're allowed to sign up for Social Security as early as age 62. But for each month you claim benefits before FRA, those payments get permanently reduced.
In some cases, filing for benefits early makes sense. If your company goes under and you can't find a new job in your early 60s, then you're generally better off claiming Social Security ahead of FRA instead of racking up debt on credit cards to cover your basic living costs. But if you're able to keep working and you don't have a lot of money saved for retirement, then filing for Social Security early is a move you might sorely bemoan after the fact.
Let's say you're entering retirement with $112,500, which is the average savings balance among 60-somethings as per a recent Northwestern Mutual survey. If we use the 4% rule to determine a withdrawal rate, a balance that size results in $4,500 of annual income. That's not a whole lot.
And in a situation like that, you probably don't want to slash your monthly Social Security benefit for life. If anything, you'd probably want to do everything possible to grow it.
2. Delaying your filing when your health is poor
Holding off on claiming Social Security past FRA can result in boosted monthly benefits. That incentive stays in place until age 70, at which point your benefits can no longer grow.
You may be inclined to delay your Social Security claim to boost your retirement income. But if your health isn't in good shape, that decision might backfire on you.
While waiting to claim Social Security might increase your payments on a monthly basis, you might lose out on Social Security income on a lifetime basis. In fact, when you're looking at poor health that's likely to result in a shortened lifespan, it can often make sense to claim Social Security early despite the hit in monthly benefits that results.
The decision to claim Social Security is a big one, and you'll probably put a lot of thought into it. In some cases, it can make sense to file for benefits early, just as delaying your filing can easily pay off depending on your circumstances. But make sure you know which category you fall into before making your choice. And remember, too, that signing up at FRA precisely is also an option, and it may end up being an ideal compromise.
