Should You Wait Another Year to Claim Social Security?

You may think you've done all you can to maximize your Social Security benefits. You worked hard for decades. You increased your income over your career. Now you're staring at the application screen and wondering if it's finally time to start receiving money from the program.

It could be. But there's one more important factor to consider: your age. Applying early will shrink your checks by up to 30%, depending on how soon you do it. That could cost you tens of thousands of dollars in lost benefits over your lifetime.

Waiting to apply could help you get more out of the program, but that's not always financially feasible. However, you don't have to delay for long for that wait to be worthwhile. Postponing your claiming date by even one year could deliver lasting financial benefits.

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How your claiming age affects your Social Security benefits

You likely already know that you become eligible for Social Security retirement benefits when you turn 62. But signing up then is technically considered claiming "early."

Claiming "on time," according to the Social Security Administration, means doing so at what the government views as your full retirement age (FRA). That will vary depending on your birth year, but for most people who haven't yet retired, it's 67. (If you were born before 1960, yours will be 66 plus a number of months.)

The benefit you qualify for at your FRA is known as your primary insurance amount (PIA). The Social Security Administration calculates this based on the 35 highest-earning years of your income history. Then, it adjusts your actual benefit up or down depending on whether you'll be older or younger than your FRA at the time you receive your first check.

Claiming early shrinks your checks while claiming late increases them -- up until you turn 70, after which you can no longer earn additional delayed retirement credits. Or, put another way, from the time you turn 62 to the day you turn 70, every month you delay taking Social Security increases the size of your checks. And the rate of increase grows the longer you postpone.

If your FRA is 67, for each month early that you claim that happens when you are 62 or 63, your checks shrink by 5/12 of 1% of your PIA -- so, 5% per year. For the three years while you're 64 through 66, each month early reduces your checks by 5/9 of 1% of your PIA. That adds up to reductions of 6.67% per year. 

So, for example, if you claim at 64, your checks will be 20% smaller than your primary insurance amount. Claim at 62, and they'll be shrunk by 30% (Though of course, they'll still get adjusted upward a bit in most years by the annual cost of living adjustment.)

Source: Social Security Administration.

Delaying until 70 obviously results in the largest checks. If you have an FRA of 67 and would qualify for a $2,000 monthly benefit at 62, you'd get $3,543 per month by waiting until 70 to sign up. But even shorter delays would have a noticeable impact. Waiting until you're 63 would grow that $2,000 monthly benefit by about $143 -- giving you about $1,714 more per year. 

How to decide whether you should delay your Social Security application by a year

There are three key factors to consider when deciding whether to apply for Social Security now or wait another year or more to sign up.

Your finances

Delaying Social Security may not be an option for you if you're unable to work and have little personal savings. In this case, claiming early would be preferable to going into debt, even if it means settling for smaller monthly benefits for the rest of your life. However, if you can afford to, you could benefit from delaying Social Security by a month or two to lock in slightly larger checks.

Your life expectancy

If you have good reason to expect that you'll live into your 80s or beyond, you'll probably get a larger total lifetime benefit by delaying Social Security until your FRA or beyond. But people who have shorter lives are likely to get more overall out of the program by signing up as soon as possible. If your health and family history give you reason to think that you're going to be in the latter group, you may do better to claim Social Security earlier.

That said, some seniors with dependents may choose to postpone as long as they can regardless. Claiming Social Security early permanently reduces the survivor benefits your family members may be eligible for after you pass away. If you believe your spouse or dependent children will rely heavily on Social Security checks that are based on your benefits after you're gone, you might even choose not to claim Social Security at all while you're alive so they'll be eligible to get more money after your death.

Effect on family members' benefits

In addition to its impact on your family members' survivor benefits, you'll also want to think about how your decision will affect the other members of your household while you're alive, particularly if any of them are eligible to claim benefits based on your work record. This includes spousal benefits or dependent benefits for minor children under 18 (19 if still enrolled in secondary school) or older children who were disabled before 22.

These family members won't be eligible to claim checks on your work record until you apply for benefits. If you have some family members, like dependent children, who may not qualify for checks in a few years, you may prefer to sign up earlier so they can receive their benefits now.

It's best to discuss your Social Security claiming strategy with all affected family members so you can come up with a plan that works best for everyone. If the time doesn't feel right right now, consider delaying your application a little bit. Just keep in mind that it takes time for the Social Security Administration to approve your application, so remember to sign up a few months in advance of when you hope to claim checks.