I was talking to an older friend the other day who's starting to think seriously about retirement. And one thing we talked about was Social Security.
First, I reassured him that while benefit cuts are possible, the program isn't in danger of disappearing completely. I then gave him a run-through of his filing options, even though he was pretty familiar with the rules.
In case you're not sure what those guidelines entail, here are the basics. You can claim Social Security at any age once you turn 62. However, you're not eligible for your complete monthly benefit, based on your personal wage history, until full retirement age (FRA) arrives. That age hinges on your year of birth and is 66, 67, or somewhere in between.
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For each month you claim Social Security ahead of FRA, your retirement benefits will be reduced. But on the flip side, you can delay your claim past FRA for a higher monthly benefit. Once you turn 70, though, there's no growing your benefits any longer, which is why 70 is generally considered the latest Social Security filing age.
Once I explained these options to my friend, he was more confused than when we started our talk. In a nutshell, he has no idea what filing age is best for him.
I can relate. Even though I write about Social Security all the time, I go back and forth a lot about when I think I'll take benefits. And I'm far from having settled on a single filing age. But I'm also not stressed about that for one big reason.
I don't expect Social Security to matter all that much
Although I've been actively planning for retirement for quite some time already, I'm not close to being able to claim Social Security. So that's one reason I'm not worried about my filing age.
But the main reason I'm not concerned is that I don't expect those benefits to constitute a very large portion of my retirement income. Benefit cuts aside -- and those aren't even guaranteed to happen -- I've been diligently socking money away for retirement since my twenties in the hopes of amassing a nice-sized nest egg. While I expect to be in line for some income from Social Security, I expect my savings to provide a lot more.
I'm also someone who likes to work and doesn't enjoy being bored. As such, barring health issues, I anticipate continuing to hold down a job and earn money in retirement in some shape or form. That, too, could reduce my reliance on Social Security.
You might need to put more thought into your filing age
Like me, my friend has been saving for retirement since his twenties, so he's got a few million dollars socked away. And he's still planning to put in a few more years in the workforce, which means his savings might grow even more.
As such, while I encourage him to think carefully about when to claim Social Security, I also think he doesn't need to stress over it. Ultimately, it probably doesn't matter so much whether he takes benefits at FRA, a little before, or a little after. Either way, he intends to get most of his retirement income from savings, so those benefits will be more like backup income.
If you're approaching retirement with pretty much no savings, then you really do need to think through your filing choices thoroughly, since there's a lot riding on that decision. And you may want to consider waiting until at least FRA to sign up for benefits so you don't end up having them reduced. But if you expect Social Security to be more of a minor income source in retirement, then there's no need to sweat your filing decision.
Incidentally, Social Security is designed to pay you the same lifetime benefit regardless of when you file, assuming you live an average life span. If that happens, the hit to your benefits caused by an early filing will likely be offset by the larger number of individual payments you collect. On the flip side, delaying your claim past FRA might give you higher monthly payments, but you'll receive fewer individual payments.
This isn't to say that you should flip a coin to land on the best Social Security filing age. The point, however, is that you don't necessarily have to lose sleep over the fact that you don't know when to sign up if you have decent money coming your way outside of those benefits. I know I'm not.
