Once you turn 62, you're eligible to file for Social Security -- and that's a route many older workers go each year. But the decision to claim benefits is a big one, so it's crucial to understand the repercussions of filing at different points in your life. If you're thinking of taking benefits, here are a few questions you'll want to answer first.
1. Have I reached full retirement age?
Though you can start collecting Social Security as early as age 62, you're actually not entitled to your full monthly benefit until you reach your full retirement age. That age is a function of your year of birth, as follows:
Year of Birth
Full Retirement Age
66 and 2 months
66 and 4 months
66 and 6 months
66 and 8 months
66 and 10 months
Data source: Social Security Administration.
Let's imagine you were born in 1960, and that based on your earnings record, you're entitled to $1,500 a month in benefits. If you wait until you turn 67 to file, you'll collect that $1,500 each month. But if you file ahead of schedule, you'll face a reduction in those payments. That reduction will depend on how early you file, but taking benefits at 65, for example, will cut each monthly payment to $1,300. Claiming benefits at 62, meanwhile, will take each monthly payment down to $1,050.
If you're counting on Social Security to help pay the bills in retirement, then you may be better off waiting until full retirement age to avoid a reduction in benefits. Otherwise, just be aware that you'll reduce that income stream by filing early.
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2. Do I need the money right away?
Maybe you're eager to file for Social Security because you know you're allowed to claim benefits and figure you might as well get what's rightfully yours. But there's a difference between wanting your money a bit sooner and actually needing it. It's estimated that 60% of workers wind up retiring earlier than planned, whether due to health problems, layoffs, or other reasons. If you're in a jam and are desperate for cash, then it absolutely pays to file for Social Security as soon as you can. But if you don't need that money right away, it often makes sense to hold off -- even if you've already reached your full retirement age.
For each year you delay benefits past full retirement age, you'll boost your monthly payments by 8%. Not only is this increase guaranteed, but it'll remain in effect for the rest of your life. Using our example above, a monthly benefit of $1,500 at age 67 would grow to $1,620 by age 68, $1,740 by age 69, and $1,860 by age 70, which is the latest age to capitalize on this incentive. Therefore, if you're not desperate to have those benefits, waiting a bit longer could produce an even more substantial income stream throughout retirement.
3. Is my spouse eligible for benefits?
Being married has certain implications from a Social Security standpoint, and that's something to consider before taking benefits. If your spouse never worked, and therefore isn't entitled to benefits based on an earnings record, that spouse will be entitled to up to 50% of your benefits. Similarly, if your spouse worked but didn't earn as much as you did, your spouse will get the larger of his or her own benefit or half of yours.
And if you pass away first, your spouse will be eligible for survivor benefits equaling up to 100% of the monthly amount you collect. Therefore, the age at which you choose to file is significant, because the more Social Security income you collect, the more your spouse could end up with as well.
Now let's say that your spouse did work and is entitled to benefits. If that's the case, you can pair up to approach Social Security strategically. For example, you might decide that the lower earner of the two of you will file for benefits sooner to generate some income up front, while the higher earner waits and allows benefits to grow. There are several options to consider, so run some calculations before pulling the trigger on your own benefits.
Filing for Social Security strategically could set the stage for a more financially secure retirement. Put the right amount of thought into the decision, and with any luck, you'll get it just right.
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