One of the bigger decisions you'll need to begin thinking about as you approach retirement is when you want to claim Social Security. It will permanently affect how much you receive in benefits, so it's best not to gloss over it. Thankfully, there's no "right" or "wrong" time; just the time that best fits your personal situation.
If you're wondering if or when you'll be ready, here are five signs that now may be the time.
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1. You understand how your claiming age affects benefits
Your full retirement age is when you're eligible to receive your base monthly Social Security benefit, called your primary insurance amount (PIA). However, you can claim benefits before or after that age, affecting how much you receive monthly.
If you claim benefits before your full retirement age, the monthly amount is reduced by 5/9 of 1% monthly for the first 36 months. Every additional month after that will further reduce benefits by 5/12 of 1% monthly. Assuming your full retirement age is 67, here is how much your monthly benefits will be reduced by based on claiming age:
- Age 66: 6.6%
- Age 65: 13.33%
- Age 64: 20%
- Age 63: 25%
- Age 62: 30%
If you claim benefits after your full retirement age, the monthly amount is increased by 2/3 of 1% monthly, or 8% annually, until you reach age 70. After 70, benefits are no longer increased by delaying.
2. You're aware of your break-even age
Your break-even age in Social Security is when the total lifetime benefits from claiming at one age equals the total from claiming at another age.
For example, the break-even age between 62 and 70 is 80.4. That means before that age, you would have received more lifetime benefits by claiming at age 62. After that age, the roles switch, with your lifetime benefits being more from claiming at age 70.
Knowing your break-even age can help you decide whether smaller benefits for a longer period or larger benefits for a shorter period is the better choice for you.
3. You have an income gap that you need to cover
Ideally, you would have other retirement income sources -- like a 401(k) or IRA -- that would be able to cover your expenses. Unfortunately, that's not the case for many people. Many people rely on Social Security to cover the gap between their expenses and income.
If you're setting up your budget and notice you're coming up short, by all means, claim Social Security to ensure your livelihood isn't in jeopardy. According to the Transamerica Institute, around 53% of retirees rely on Social Security for their primary retirement income source.
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4. Your spouse wants to claim benefits
Social Security spousal benefits allow a person to claim Social Security based on their spouse's work history. This is a significant benefit for couples in which one person has a low or spotty work record. For someone to claim spousal benefits, the primary spouse must already be claiming benefits. So, if you have a spouse who is ready to begin claiming spousal benefits, you will need to claim for them to be eligible.
Assuming your spouse is claiming spousal benefits at their full retirement age, they'll be able to receive up to 50% of your PIA. If they claim spousal benefits before their full retirement age, the monthly amount will also be reduced.
5. You're aware of how the retirement earnings test works
If you claim Social Security benefits before your full retirement age and continue to earn money, you could be subject to Social Security's retirement earnings test (RET). Knowing how it works can save you from an unexpected benefits reduction.
If you won't reach your full retirement age in 2026, the earnings limit is $24,480. Earning above that amount will reduce your benefits by $1 for every $2 you earn over. If you hit your full retirement age in 2026, the limit is $65,160. Earning above that amount will reduce your benefits by $1 for every $3 over.
An important note: Benefits aren't permanently lost, just withheld. Once you reach your full retirement age, your benefits will be recalculated in a way that gradually adds the withheld amount back.
