If you’re going to retire soon or have already done so, you’ll need to decide what to do with Social Security. You do not have to apply for benefits just because you stop working. You can request checks at any time between the ages of 62 and 70.
So, is this the right time to start enjoying your benefits? Here’s what to consider before making this important choice.
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When is your full retirement age and how old are you now?
The most important thing to know before applying for Social Security is what your full retirement age (FRA) is and how your FRA compares to your current age.
Your full retirement age is determined by the Social Security Administration. Here’s what yours is, based on when you were born:
It is 66 if you were born between 1943 and 1954.
It’s 66 and two months if you were born in 1955.
It’s 66 and four months if you were born in 1956.
It’s 66 and six months if you were born in 1957.
It is 66 and eight months if you were born in 1958.
It’s 66 and 10 months if you were born in 1959.
It’s 67 if you were born in 1960 or later.
You can apply for benefits at this exact age to receive your standard benefit, also known as your primary insurance amount (PIA). Your PIA is equal to a percentage of the average wage, calculated by taking into account your 35 highest earning years. But most people don’t exactly claim their FRA.
If you are considering filing a claim early, you should know that early filing penalties will permanently reduce your standard benefit by 5/9 of 1% for up to 36 months. Furthermore, the benefits are reduced by 5/12 of 1% per month. So for someone with an FRA of 67, the penalty would reduce their monthly benefit by up to 30%.
On the other hand, if you claim after your FRA has earned, you defer credit filing until age 70, permanently increasing your benefit. Your check increases by 2/3 of 1% per month you defer after FRA, which equates to an 8% annual payout increase.
How much savings do you have left?
Social Security alone will not be enough to support you, as benefits only replace about 40% of pre-retirement income. That means you need a plan with other sources of income before you claim. If you haven’t calculated the income your savings or retirement will bring to make sure you have enough money to live on, you can delay starting Social Security.
Of course it is possible to work while receiving a pension. But if you haven’t reached FRA, don’t reach FRA at any time of the year, and work while receiving benefits, you’ll lose $1 in Social Security payments for every $2 earned above $19,560 in 2022. And if you reach FRA on any time in the year, but you work for it, you lose $1 for every $3 earned over $51,960.
There’s not much benefit to claiming benefits if you have to work to supplement them, and you make enough to lose much of that retirement income.
How is your health?
Your health is also very important when deciding when to start your checkups. When you defer benefits, you’re putting out checks you’re entitled to in hopes of getting enough money later to make up for the lost income.
But if you’re not in good health, you risk dying before you receive many (or no) payments at all. In those cases, it makes sense to file early for Social Security to maximize the total lifetime value of your benefits.
How does your choice affect your partner?
Finally, you need to think about your spouse. If you are the largest earner, your spouse can continue to receive your checks after you die in the form of a survivor benefit. These may be higher than their own retirement benefits, but if you applied for your benefits earlier and incurred the resulting penalties, your partner will have less income each month.
Taking all of these factors into account will help you decide whether you should file your claim right away or postpone it so that you can increase your benefits and any survivor benefits your spouse may also receive.
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