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Social Security is likely to be very important to your retirement. But wait, the amount can vary.

Just when to begin taking Social Security can be a real challenge because the time to begin filling your claim ranges from the age of 62 to 70, according to the Independent Record in “These 3 Factors Should Influence When You File for Social Security”. One of the biggest challenges is deciding if you should file early and end up with a smaller benefit check.

What’s in the middle of 62 and 70? Full Retirement Age (FRA), which is the age at which you’re entitled to receive the full monthly benefit based on your earnings history. That age depends upon what year you were born.

What usually happens is that people start taking their benefits early. For every month ahead of your FRA that you take benefits, your monthly benefit will shrink. Claim at age 62 when your FRA is 67, and you’ll take a 30% hit. However, if you can wait, you’ll receive “delayed retirement credits” that increase benefits by 8% up to age 70. By waiting, you can boost your Social Security benefits by 24%.

Keep the following factors in mind before deciding when to claim your benefits:

  • Your earnings. You can keep working and receive Social Security benefits. However, unless you’ve reached FRA, doing this will cut your benefits in not one, but two ways. First, you’ll get a reduction because you filed before your FRA. Next, if your earnings exceed a certain level, that is, if you earn more than $17,640, a portion of your benefits will be withheld. However, it’s not permanent because they’ll be added back into your monthly payments once you reach FRA. If you reach FRA later in the year, that earnings limit can go as high as $46,920. If you can wait, it may be best to keep getting your paycheck and letting those benefits grow.
  • Your savings. Social Security was never intended to be a middle-class retirement plan. It was originally designed to protect the most vulnerable Americans — those who were infirm or elderly — from dire poverty. However, as a nation, we’re not great at saving for retirement. Therefore, Social Security plays a big part in most people’s retirement income. The more you’re going to depend on Social Security to fund your retirement, the longer you should wait to file for benefits.
  • Your health. This is the great unknown. We simply can’t know how long we are going to live, whether our health is good or bad. Social Security is designed to pay the same total lifetime benefit, regardless of when you file. Say that your FRA is 67, but you file at age 62. You are reducing your monthly benefits by 30%, but you’re collecting 60 more benefit payments during your life. The catch is, you need to live an average life for the formula to work. If you die earlier, you’ve lost money by waiting to file. If you pass away later than the average senior, then you’ll have maxed out your Social Security benefits.

Evaluate all three of these factors to the best of your ability. You should also consider your lifestyle and spending habits. There is no one right answer. However, making the right choice could have a significant impact.

Reference: Independent Record (Feb. 2, 2019) “These 3 Factors Should Influence When You File for Social Security”

For more information on elder law, retirement planning and estate planning, please visit my estate planning website.

Mr. Amoruso concentrates his practice on Elder Law, Comprehensive Estate Planning, Asset Preservation, Estate Administration and Guardianship.