The monthly benefit you're entitled to from Social Security is based on your lifetime wages -- specifically, the amount of money earned during your 35 most profitable years in the labor force. But your actual filing age will also play a role in how much Social Security income you get each month.
You're entitled to your complete monthly Social Security benefit based on your wage history once you reach full retirement age, or FRA. If you were born in 1960, FRA is 67. If you were born earlier, it's either 66 or 66 and a specific number of months.
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You do not have to file for Social Security at FRA. You're allowed to sign up for benefits as early as age 62, and you can delay your filing past FRA for a boosted monthly benefit.
You may be inclined to choose the filing age that results in the highest monthly benefit for you. But rather than focus on monthly benefits, it pays to focus on lifetime Social Security income instead.
Think long-term
Delaying Social Security past FRA might seem like a no-brainer sort of move from a financial perspective. For each year you hold off, up until age 70, your monthly benefit grows 8%. Who wouldn't want that boost?
Let's say you're eligible for a monthly Social Security benefit of $2,000 at an FRA of 67. Signing up at age 70 will leave you with $2,480 a month instead.
But while delaying Social Security may result in a higher monthly benefit, it won't necessarily lead to a higher lifetime benefit. That's because it's hard to know how long you'll live. And if you don't live past a certain break-even point, a delayed filing could end up being a poor financial decision.
In this example, your break-even point is 82 ½. And at 82 1/2, you'll have received a total of $372,000 from Social Security whether you started getting those benefits at age 67 or age 70.
But if you only live until age 79, you'll end up with less lifetime Social Security income by virtue of a delayed filing. So going after that boost may not make sense if, say, you have health issues that leave you questioning whether you'll really live such a long life.
In fact, if you're plagued with poor health going into retirement, in some cases, an early Social Security filing could be your best course of action. By starting to get that money sooner, you could get yourself up with more lifetime income if you end up passing away relatively young.
A tough decision to make
The challenging thing about deciding when to claim Social Security is that no has a crystal ball, and no one knows how long they'll live. The point, however, is to consider not just your monthly Social Security paycheck when making your filing choice, but also your lifetime income. Focusing more on the latter than the former could ultimately lead you to land on the most optimal age to sign up.
