Are you thinking about claiming Social Security? Don't rush into doing so, as this choice can have major implications for the rest of your retirement. Chances are, these benefits are going to be one of your most important and reliable income sources, and you don't want to make a mistake and end up regretting your claim because your choice hurts your financial security.
Before you jump into filing for benefits, there are actually three things it is critical to know to make an informed claiming choice.
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1. What your full retirement age is
The first thing it's critical to know before you even think of filing for Social Security benefits is what your full retirement age is. This information is important because it can guide you in deciding if now is really the right time.
See, you have a standard benefit, called your primary insurance amount (PIA). To receive exactly this amount, you must claim it at FRA. This isn't as straightforward as it might seem, since your birth year impacts when you can do that. You can't just claim at the same time as your friends or as retirees who came before you because the timing of your birth affects when your standard benefit becomes available.
If you file for benefits even a single month before you reach your full retirement age, the result is a permanent reduction in monthly benefits. For each of the first 36 months you claim early, you lose five-ninths of 1% per month from your standard benefit. If you file for benefits way ahead of schedule and are more than 36 months early, you lose an additional five-twelfths of 1% for any month prior to that time. These penalties add up to around a 6.7% loss of benefits for each of the first three years, and a 5% loss per year before that.
You don't want to just lose your benefits without understanding the implications. And you may also want to delay longer than FRA so you can raise your retirement check amount by two-thirds of 1% per month, or 8% annually. So check your FRA before you even consider filing for benefits. Here's when yours is, based on when you were born.
| Birth Year | FRA |
|---|---|
| 1956 | 66 and four months |
| 1957 | 66 and six months |
| 1958 | 66 and eight months |
| 1959 | 66 and 10 months |
| 1960 or later | 67 |
Data source: Social Security Administration. Table by author.
Now you know when you can get your full benefits, so you can compare your current age to FRA and decide if it's a good time to claim or if you'd rather wait to increase your monthly income.
2. Your benefit amount
Knowing how much your benefit is going to be is also important. That's especially true because the size of your checks may shock you -- and not in a good way. The average retirement check in 2024 is just $1,907. That is not a lot of money.
Of course, it's true you might get more than the average if you delayed your claim or earned more over your working life than most of your peers. But you also might get less if you claimed early or didn't earn as much as the typical American.
The reality is, the benefits you get are only supposed to replace around 40% of pre-retirement earnings, when you must have around 80% or more to maintain your living standard. This might seem like a glitch, but it reflects the fact that Social Security wasn't designed to support you by itself. It's supposed to work with your savings and a pension to give you a comfortable retirement.
Knowing what your benefit amount will actually be can give you a realistic idea of what Social Security can do for you. You should check your mySocialSecurity account to see how much money you're in line to get. If you can't live off that number plus your savings, you need a backup plan, like delaying your benefits claim and working longer.
3. Tax rules
Finally, you should understand the tax rules applicable to Social Security benefits. Specifically, if your provisional income is more than $25,000 as a single tax filer or $32,000 as a married joint filer, this will result in a portion of your benefits becoming taxable. Provisional income is half of Social Security, plus all taxable and some nontaxable income like MUNI bond interest.
Depending on just how high your earnings are, up to 85% of Social Security could be subject to taxation by the IRS. Some states also tax Social Security as well. If you live in one of the 10 that does, you could lose even more of your benefit. You need to be aware of the fact you may not get to keep all your money, so you can ensure it's enough after the government takes its cut.
If you understand all three of these things and still decide you're ready to claim benefits, you're probably good to go ahead. But be sure you really think through these facts so you don't make a decision you come to regret.
