Determining what age to begin claiming Social Security is one of the biggest retirement decisions you'll face, and it will impact your monthly income for the rest of your life.
You can file for benefits as early as age 62, but for every month you wait up to age 70, you'll receive slightly larger checks. For that reason, many experts recommend delaying Social Security until age 70 to receive the maximum possible payments.
While that's not always a bad idea, it's not the right move for everyone. Claiming earlier is a far better decision in some cases, and it could even help you earn more in benefits over time. Here's how to decide whether it's the right choice for you.
Image source: Getty Images.
When it pays to take Social Security early
Delaying benefits until age 70 could help maximize your monthly payments, but that doesn't necessarily mean you'll collect more over a lifetime.
Social Security benefits are designed so that, in theory, you should receive the same amount in total no matter when you begin claiming. If you file early, you'll collect smaller payments but more of them over a lifetime. By delaying benefits, you won't receive as many checks, but each one will be larger.
However, the math here only works out if you end up living an average lifespan. If you have reason to believe you may not live well into your 80s or beyond, you could actually receive more in total by claiming benefits early.
This isn't the most pleasant topic to think about, but taking a realistic look at your health and life expectancy can help you decide when to start taking Social Security. In some cases, delaying benefits could be costlier than filing early.
Filing early could make retirement more affordable
Claiming benefits early can also make it easier to retire early -- especially if you're forced to retire sooner than expected due to job loss or health issues.
You can retire in your early 60s and delay benefits by a few years. However, you'll need to rely on your savings or other sources of income in the meantime, and unless your retirement fund is especially strong, this risks draining your savings too quickly. Taking benefits as soon as you retire, though, can help stretch your savings further.
This is also true if you retire early by choice. Finances aren't everything when deciding when to retire and take Social Security, and sometimes the smaller checks you'll receive by filing early are a worthwhile sacrifice to retire a few years sooner. If you have a strong nest egg or are willing to make financial cutbacks in retirement, there's nothing wrong with claiming early to get a jump-start on this next chapter in life.
One situation when you're better off delaying benefits
While claiming early can be a smart move in many situations, delaying Social Security can dramatically boost your monthly payments. If your savings are falling short, this extra cash each month can go a long way.
Your full retirement age (FRA) is the age at which you'll receive the full benefit you're entitled to based on your career earnings, and it's 67 years old for everyone born in 1960 or later.
Image source: The Motley Fool.
Say, for example, you have an FRA of 67, and by filing at that age, you'd receive $1,900 per month -- which is roughly the average benefit among retirees, as of January 2023.
If you were to file as early as possible at age 62, your benefit would be permanently reduced by 30% -- leaving you with $1,330 per month. But by delaying claiming until age 70, you'd receive your full benefit plus a bonus of 24% per month -- or $2,356 per month. That's a whopping $1,026 more per month than you'd receive at age 62.
Again, finances aren't everything when it comes to choosing when to take Social Security. There are valid reasons to consider claiming early, especially if you're battling health issues or retiring early. But delaying benefits will give you the highest possible monthly checks, which can make an enormous difference in retirement. By understanding the pros and cons of all your options, it will be easier to decide on the best choice for your situation.
