As you approach retirement, there are a few decisions you should consider to make sure you're as financially prepared as possible. This includes when you want to start taking withdrawals from your retirement account(s), how to adjust your investments, and when to claim Social Security.
All the decisions are important, but especially your Social Security claiming decision because it permanently affects how much you receive in benefits. There's no clear-cut "this is the perfect time to claim" answer that applies to everyone, but there are a few boxes you want to make sure you check off before claiming.
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1. You're aware of how when you claim affects your benefits
In Social Security, your primary insurance amount (PIA) is your base monthly benefit that you'll receive if you claim benefits at your full retirement age. You don't have to claim benefits then, though; you can claim before or after that age, but your monthly benefit will be adjusted accordingly.
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 -- which is the case for everyone born in 1960 or later -- 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. So, if your PIA was $2,000, delaying until 70 would boost your benefit to $2,480.
2. You know what your break-even ages are
In Social Security, your break-even age is when the total lifetime benefits from claiming at one age equals the total from claiming at another age. Knowing this can help put into perspective the trade-off you're making by claiming early and taking lower benefits or delaying benefits and receiving a higher monthly payout.
For example, imagine you're debating between claiming at age 62 or 67. The break-even age between those is 78.7. That means before then, you would have received more lifetime benefits by claiming at age 62. After then, it's vice versa, with your lifetime benefits being more from claiming at age 67.
Thankfully, break-even ages are the same between two ages regardless of the benefit amount, so you don't need to find yourself doing a lot of math. The break-even age between 62 and 70, for instance, is 80.4. The break-even age between 67 and 70 is 82.5.
3. Your spouse wants to claim spousal benefits
Social Security spousal benefits allow one spouse to claim benefits based on their partner's earnings record. It's a good route to consider when one spouse is a much higher earner (meaning higher monthly benefits) or when one has an inconsistent work record.
Claiming spousal benefits allows you to receive up to 50% of the claiming spouse's PIA. However, to be eligible to claim spousal benefits, the primary spouse must currently be receiving benefits. So, if you're considering spousal benefits and will be the primary claimer, you'd need to claim benefits so your spouse would be able to claim. Other notable criteria are:
- You must have been married for at least one year, or be divorced after having been married for at least 10 years
- Be 62 years old, caring for a child under age 16, or caring for a child with a disability
Although you can claim spousal benefits at 62, the monthly benefit is also reduced if you claim before your full retirement age. Just as with standard benefits, this is important to keep in mind because it permanently affects how much you'll receive.
