One of the biggest retirement decisions you might have to make is choosing a Social Security filing age. And that decision is huge.
Your monthly Social Security benefit is based on your personal wage history. And you can file for benefits as early as age 62.
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However, you're not eligible to receive your monthly benefit without a reduction until full retirement age arrives. That age is 67 for anyone born in 1960 or later.
You can also opt to delay Social Security past full retirement age for boosted monthly checks. For each year you hold off, until you reach age 70, your monthly benefit gets an 8% increase.
If your goal is to squeeze as much money out of Social Security as possible, then you may be inclined to delay your filing until age 70. But before you do, make sure to run one important calculation.
It's not just a matter of monthly income
It's very clear that claiming Social Security at 70 will result in the highest possible monthly benefit you can get. But that doesn't mean filing at 70 will result in the highest lifetime payout.
Though signing up for Social Security at 70 will put more money in your pocket each month, you're also missing out on many months of benefits you could've gotten by signing up sooner. So it's important to calculate your break-even age to decide when the right time is to sign up.
Now there are a few different ways you could run that formula. But let's say you're trying to decide whether to claim Social Security at 67 versus 70. If you're looking at a $2,000 monthly benefit at 67, your break-even age is 82 and 1/2.
Specifically, by 82 and 1/2, you'll collect a total of $372,000 in Social Security income whether you receive $2,000 a month starting at age 67 or $2,480 a month starting at 70.
What do you do with that information? If your goal is to get the most out of Social Security in your lifetime, then you need to ask yourself whether you think you'll live longer than 82 and 1/2.
If the answer is yes, then filing at age 70 makes sense. If you're not sure or aren't confident that you'll live beyond that point, then you may want to sign up to get benefits sooner.
Decide what your goal entails
Calculating your break-even age for Social Security is important if your objective is to get the program to pay you the most money possible. But if that's not your goal, then you may want to take a different approach.
Let's say you've built a lot of retirement savings, so you primarily want Social Security to be a source of leisure spending. You may decide that your goal is to get that money as early in retirement as possible so you can use it for things like travel.
In that situation, you don't necessarily have to calculate your break-even age, because even if filing at 62 isn't the most lucrative option, it could still be the option that makes the most sense for your situation.
The point, however, is that it's important to think about total income, and not just monthly income, when deciding when to claim Social Security. Once you've figured out that piece of the puzzle, you can make a more informed filing decision you're less likely to regret.
