Image: SSA.

Social Security will play a vital role in your retirement finances, and in your planning, deciding when to apply for Social Security benefits will be a key consideration that will have an impact throughout your retired years. There are two aspects to the question of when to apply for Social Security, and both are important in their own way. Below, we'll look at both angles to try to give you some answers.

The procedural angle
The easier answer to the question of when to apply for Social Security deals with application process itself. The Social Security Administration advises that you should apply for Social Security three months before you want your benefits to start. For those who want to take benefits at the earliest available age of 62, that means that the SSA will start accepting applications when you are 61 years and nine months old.

One thing that many retirees don't realize is that Social Security and Medicare use the same application process. Accordingly, the SSA recommends you apply for Medicare three months before your 65th birthday even if you don't plan to start your Social Security benefits until a later date.

The meat of the question
Of course, saying you should apply three months before you want your benefits to start doesn't address the question of when you should start your benefits. Answering that question requires personalized consideration, but many of the factors are common to everyone.

First, it's important to understand the impact that the timing of your taking Social Security benefits has on the amount of your monthly benefit. The SSA calculates your primary insurance amount, which it then uses to set what you'll receive if you wait until full retirement age to claim benefits. That age is currently 66, but beginning next year, it will start to rise by two months per year until it reaches age 67 in 2022. If you take benefits earlier than full retirement age, then your monthly payment will be reduced. If you wait until after full retirement age to take retirement benefits, then you'll get larger payments.

Second, it's important to assess your financial needs and how they compare to your Social Security eligibility. For instance, those who've been laid off or forced to retire early might not have any realistic financial choice but to take Social Security at their first opportunity. Those who have other sources of retirement income, such as a private pension or an investment portfolio, have more options about waiting beyond 62 to start taking Social Security benefits.

Finally, you also need to understand the impact that your filing decision will have on your family. When you file for Social Security retirement benefits, you also enable your spouse to claim any spousal benefits that are available. Depending on your spouse's own work history and any retirement benefits to which your spouse is entitled directly, the value of these additional spousal benefits will vary. Nevertheless, the need to file to enable spousal benefits sometimes provides a financial incentive to file earlier than you ordinarily would.

Conversely, filing later can also provide some benefits for family members. Survivor benefits after your death are based not only on your primary insurance amount but also on when you claimed Social Security. In general, the later your claim your benefits, the larger the survivor benefits that your spouse and any eligible children will receive. That can give you an incentive not to take benefits until you absolutely need them.

Deciding when to apply for Social Security has multiple facets, but the decision is a key one for every retiree and near-retiree. Understanding all the factors involved will make you smarter and help you make the right move for your situation.