Social Security is a fairly flexible program, in that you get to choose when to start getting benefits once you reach the age of 62. To be clear, you're not eligible for your full monthly benefit based on your personal earnings history until you reach full retirement age (FRA). That age is 67 for anyone born in 1960 or later. But once you turn 62, you can sign up for Social Security at any time.
You should know that filing for Social Security before FRA will result in a reduced benefit. And the earlier an age you file at, the more of a reduction you'll be looking at.
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You should also know that delaying your filing beyond FRA will result in a higher monthly Social Security benefit for life. You can grow your benefits by 8% a year up until age 70, at which point you might as well file because there's really no financial advantage to holding off.
Clearly, the decision to start collecting Social Security is a big one. So make sure you've answered these questions before making your filing official.
1. Do I know what monthly benefit I'm in line to receive?
It's hard to know whether you can afford to claim Social Security early, or whether you should push yourself to sign up after FRA, without knowing what your monthly benefit actually looks like. To that end, log on to the Social Security Administration's website and access your most recent earnings statement. It should give you an estimate of your monthly benefit so you can make a more informed decision.
Say you're assuming your monthly benefit will be about $2,000, but only when you access your estimate, it turns out you're only looking at $1,800 a month at FRA. That might inspire you to delay your filing for a boosted benefit -- but you won't necessarily know to do that if you don't get that estimate first.
2. Do I know how much monthly income my savings will give me?
Maybe you want your Social Security benefits a little early, so you can do things like travel while your health is still strong. Without knowing how much monthly income you'll have access to from your savings, it's hard to determine whether that's the right call, since filing early will mean reducing your Social Security payments for life.
That's why it's so important to run some numbers on your savings before filing for benefits. You might be sitting on a $600,000 nest egg. But until you see how much monthly income that gives you, it will be hard to make an informed choice about Social Security.
Now many people still opt to follow the 4% rule for retirement plan withdrawals. If you go by that, a $600,000 nest egg would leave you with $24,000 in annual income, or $2,000 a month.
You may, however, decide that 4% is too aggressive a withdrawal rate, depending on your retirement age or investment mix. If you decide that 3% is more appropriate for you, that means your $600,000 nest egg will give you $18,000 in annual income, or $1,500 a month.
Either way, it's important to have that number so you can compare it to your expenses and see how much Social Security needs to pick up the slack. If you anticipate needing $4,000 a month to live comfortably and you're only looking at $2,000 a month from savings, you'll need Social Security to provide you with the rest.
If the benefit you're in line for at FRA is only $1,800, you'll need to delay your filing to get to $2,000. But if you're looking at a benefit of $2,700 at FRA, you may be OK to file for Social Security early.
3. Do I know how my spouse feels?
When you're single, you really only have to consider your personal needs when claiming Social Security. But if you're married, you'll want to talk things through with your spouse.
Your spouse may not be eligible for a monthly benefit of their own due to not having worked. In that case, they may be eager to claim spousal benefits from Social Security -- but they can't do that until you sign up. So that's the sort of thing you'll want to talk through.
Similarly, if you pass away before your spouse, they'll be entitled to survivors benefits from Social Security. Those will equal 100% of the amount you received every month while you were alive, provided your spouse waits until their FRA to sign up.
If you delay your Social Security claim, you'll leave your life partner with a higher survivors benefit. So again, that's the sort of decision you'll want to arrive at together.
Your Social Security filing age carries a lot of weight. Cover these important questions before signing up so you don't wind up regretting your decision.
