The age at which you file for Social Security is very important. That's because that age, coupled with your wage history, will determine the amount of the monthly benefit you'll collect throughout retirement.
You're able to sign up for Social Security as early as age 62. But you're not eligible for your full monthly benefit, based on your income history, until full retirement age, or FRA, arrives. That age is 67 if you were born in 1960 or later.
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You can also delay your Social Security filing beyond FRA. For each year you do, your monthly benefit will get an 8% boost, up until your 70th birthday.
You may be inclined to avoid claiming Social Security until FRA so your monthly benefit isn't reduced for life. But what if you find yourself out of a job at an earlier age than expected?
Should you raid your savings at that point and wait on Social Security? Or should you do the opposite -- file for Social Security to avoid tapping your savings ahead of schedule?
When market conditions aren't favorable
Ideally, your retirement savings will be invested in different assets so your money can keep growing during retirement. If you need money at a time when market conditions are good, it generally pays to tap your savings rather than claim Social Security early. You're most likely not locking in losses in your IRA or 401(k) plan at that point.
However, this decision becomes trickier when you have a need for money and the market is doing poorly. If you have a portion of your savings in cash or assets that aren't impacted by market conditions, then you're generally better off raiding your savings and allowing your Social Security benefit to continue growing. But if that's not the case, then it could pay to claim Social Security early to avoid major losses in your IRA or 401(k).
As a general rule, though, you may want to first hit up your savings for money before filing for Social Security before reaching FRA. The monthly Social Security benefit you set yourself up with is the benefit you'll be in line to receive for life. So slashing that benefit could result in a world of hardship later in retirement, especially if your savings eventually run out.
Don't be fooled -- while there are steps you can take to help make your nest egg last, even people with millions of dollars risk spending down their savings too soon. So if you're able to avoid an early Social Security claim, you'll at least get the reassurance that you have a more robust monthly benefit coming your way for as long as you live.
An important decision to make
Your Social Security filing decision will carry a lot of weight through your retirement, so make sure to spend some time thinking through your options. Avoiding an early filing could give you the peace of mind that comes with having a larger benefit.
In some cases, however, claiming Social Security early does make financial sense. Assess your savings, asset mix, and market conditions to make the right call.
