Optimal Moment for Commencing Social Security Benefits
Optimal Moment for Commencing Social Security Benefits
Deciding when to claim Social Security benefits is a complex task due to various factors at play, such as your health status, retirement goals, and marital situation.
Social Security retirement benefits can be claimed between 62 and 70, but the earlier you claim, the smaller your monthly payment. You need to consider if you prefer smaller, more frequent payments or larger, less frequent payments to make an informed decision.
This article aims to provide you with all the necessary information to help you choose the optimal time to submit your initial claim for retirement benefits to the Social Security Administration.
What is the Full Retirement Age?
Understanding your Full Retirement Age (FRA) is crucial to decide when to claim Social Security benefits for the first time.
Every retiree has a standard benefit, known as the Primary Insurance Amount (PIA). The amount is determined using a formula that awards benefits equal to a percentage of wage-adjusted average earnings from the 35 years with the highest income.
If you begin receiving Social Security benefits exactly at your Full Retirement Age, you will be entitled to your PIA in full. The FRA was 65 when Social Security was created, but subsequent changes resulted in the FRA increasing gradually for individuals born after 1943.
For those born after 1943, the FRA ranges between 66 and 67, based on their birth year. The FRA is 67 for individuals born in 1960 or later.
Claiming benefits before Full Retirement Age will result in early filing penalties that lower your monthly Social Security payments by:
- 5/9 of 1% for the first 36 months before your FRA (total of a 6.7% annual reduction)
- 5/12 of 1% for any prior month before your FRA (total of a 5% annual reduction)
Since early filing penalties exist, claiming Social Security at 62, which is five years before a FRA of 67, will result in a 30% reduction to your PIA.
On the other hand, individuals who wait to file for benefits after their Full Retirement Age receive delayed retirement credits that boost their PIA by 2/3 of 1% each month. This leads to an 8% annual increase.
Full Retirement Age Table
Your Full Retirement Age depends on your birth year and can be found in the table below:
| Birth Year | Full Retirement Age || --- | --- || 1943-1954 | 66 || 1955 | 66 and 2 months || 1956 | 66 and 4 months || 1957 | 66 and 6 months || 1958 | 66 and 8 months || 1959 | 66 and 10 months || 1960 or later | 67 |
Starting Social Security at 62
Claiming Social Security retirement benefits at 62 is an option chosen by many individuals due to various reasons:
- They wish to retire early due to health issues, family matters, or lack of job opportunities and cannot afford to do so without Social Security.
- They prefer to enjoy their retirement benefits while young and healthy.
- They aim to preserve their savings rather than solely depending on investment accounts to support them during retirement.
However, starting Social Security benefits at 62 may result in a 30% reduction to your PIA due to early filing penalties, if your Full Retirement Age is 67.
1943-1954
If you choose to start receiving Social Security at 62, your benefits will be reduced permanently, and you will not be able to compensate for lost benefits at Full Retirement Age.
On the other hand, starting Social Security early may provide you with more checks if you don't wish to wait for larger payments.
Delaying Social Security
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Delaying Social Security payment is another option to consider. While you can technically file for Social Security benefits after 62, you don't access delayed retirement credits until you pass your Full Retirement Age.
Delaying the start of your Social Security income means forgoing potential payments for months or even years. To determine the breakeven point, you must calculate how long it will take to make up for lost income with the increased payments received later.
Delaying your Social Security benefits until 70 can result in a 24% increase to your standard benefit due to delayed retirement credits. To find your breakeven point, calculate how long it will take for the increased payments you receive later to make up for lost income.
For instance, if your benefit at Full Retirement Age is $1,500, receiving only $1,050 per month at 62, delaying until 70 will result in a 24% increase to your standard benefit. Your benefit then will be $1,860 per month.
Calculating your breakeven point will help you determine if waiting to receive larger payments is worth delaying Social Security benefits.
- Compute the money you'll miss out on if you wait. Going from age 62 to 70 means foregoing eight years of monthly payments worth $1,050 each. This equals a loss of $100,800.
- Work out the increase in your monthly payment due to delaying. At age 70, the monthly payment increases to $1,860, which is $810 more than the payment at age 62.
- Calculate how many extra months of higher payments are needed to offset missed income. Dividing $100,800 by $810 means you'd need to receive that extra money for 124.4 months or 10.37 years.
1955
The increase in your payments for delaying is significant, but you'll have to wait many years to really boost your checks. This should be taken into account in your retirement planning, as you might need to work until quite old or survive on savings for a long time if you want to delay taking your Social Security benefit.
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Working and getting Social Security benefits? It can get complicated.
When to Start Claiming Social Security
You don't have to claim Social Security as soon as you retire, but many people do. You should consider Social Security benefits when deciding on your ideal retirement age and how much you need to save to supplement Social Security.
1956
There are several factors to think about when you decide when to claim your Social Security benefit, such as:
How's your health?
Your health can impact when you claim Social Security.
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If you don't think you'll live long, an early claim might be better. You might not live long enough to make up for the missed benefits.
If you expect to live for a significant time, you could potentially get more lifetime Social Security benefits by delaying your claim. Once you break even for missed benefits, if you live longer and continue receiving checks, you'll end up with more money overall from the Social Security Administration.
Can you keep working?
If you're interested in early retirement or think you might need to retire early due to circumstances beyond your control (like job loss, health, or family issues), consider whether you can live without Social Security and rely on savings instead.
If you can't, then an early claim might be your only option.
Will you work after claiming?
1957
Working with Social Security is permitted, but if you haven't reached your full retirement age and you earn above a certain threshold, your benefits will be reduced.
Eventually, your benefit will be recalculated at your full retirement age to account for the payments you lost due to earning too much. But it often makes little sense to claim Social Security only to lose some or all of your checks because you earn too much.
Where will your insurance come from?
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If you're thinking about early retirement, consider how you'll get medical insurance if you retire before you're eligible for Medicare coverage. You usually can't qualify for Medicare until you're 65.
If you need to keep working for insurance reasons, you might decide to postpone your Social Security claim until you've actually left the workforce.
Are you eligible for any other Social Security benefits?
Besides retirement benefits, there are other Social Security benefits, like Social Security Disability Insurance (SSDI) if you're too disabled to work.
If you're in your early 60s and become too sick or injured to keep working, claiming disability benefits instead of just getting retirement benefits at 62 could help you avoid penalties for early filing.
If your spouse passed away, you might be entitled to a survivor benefit. You could claim this money and put off your own retirement benefits until later in life.
1958
Have you worked for at least 35 years?
Your Social Security benefits depend on the average wages in the 35 years with your highest earnings.
If you haven't worked for 35 years, benefits are still available as long as you've earned enough work credits (working for at least 10 years and earning a set minimum in each of those 10 years).
66 and 8 months
However, a work history less than 35 years will result in a smaller benefit, as some years with no wages will be considered when the Social Security Administration calculates your primary insurance amount.
Are you married?
If you're married, it's best to work with your spouse to create a Social Security claiming strategy that maximizes family benefits.
In some cases, it makes sense for a lower earner to claim early so a higher earner can delay a claim for benefits. This gives the couple some money to live on while maximizing the larger Social Security benefit.
However, if you didn't earn much or didn't work at all, you might rely on spousal benefits rather than retirement benefits. These are available based on your spouse's work record, but you can't claim them until the primary earner has claimed their own benefits. In some situations, it makes sense for the primary earner to claim benefits as soon as possible to allow for spousal benefits.
Will your partner require a survivor payment?
1959
Survivor payments are offered when one partner passes away. Upon the death of either spouse, the remaining widow(er) gets to retain the superior of the two benefits that were supporting the household.
If you are the higher wage earner, making an early claim could result in a reduction of the survivor benefits your spouse receives. This could lead to financial struggles following your death, making an early claim undesirable.
The final say
66 and 10 months
Retirement planning can be intricate, and it can be particularly difficult to determine the optimal age to claim Social Security. However, if you take into account factors such as your chosen retirement age, your partner's future financial security, and your health status, you can devise a plan that suits your needs.
Social Security Questions Answered
Is it preferable to collect Social Security at 66 or 70?
Whether to collect Social Security at 66 or 70 depends on various factors. You will obtain a smaller benefit if you claim Social Security at 66 instead of 70, but you will also receive four extra years of payments.
Calculate how long it will take you to break even for the income you miss out on by delaying your claim. If you don't anticipate living long enough, an early claim is better. However, if you expect to live longer, you could end up with more overall benefits - and more financial security later in life - if you delay your claim.
At what age is Social Security no longer taxed?
1960 or later
Your age is not relevant under the rules governing when Social Security is taxed. You will be taxed on Social Security benefits only if your total income exceeds a specific amount.
Total income includes half your Social Security income, some tax-free income (such as municipal bond interest), and all taxable income. If your total income exceeds $25,000 as a single tax filer, or $32,000 as a married joint filer, you will owe tax on a portion of your benefits.
You may be able to avoid tax on Social Security by opting for a Roth IRA for your retirement savings. Distributions from a Roth IRA are not part of total income, making it easier to remain under the earnings limit at which benefits become taxable.
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Can you collect Social Security at 65 and still work full time?
You may be able to collect Social Security at 65 and still work full time, but it is unlikely you will receive your full benefit.
The age of 65 is earlier than the full retirement age (FRA), and if you work before your FRA, you temporarily forfeit some of your benefits if you earn too much money.
Since you will not reach FRA during the entire year if you are 65 and working, you will lose $1 in benefits for every $2 earned above $23,400 in 2025 ($22,320 in 2024). This earning limit changes annually.
Eventually, at FRA, your benefits are recalculated to take this money into account - but entire checks can be forfeited in the meantime based on your earnings.
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Understanding your Full Retirement Age (FRA) is crucial when deciding when to claim Social Security benefits, as claiming benefits before FRA will result in early filing penalties that lower your monthly Social Security payments. For example, if you claim benefits at 62, which is five years before a FRA of 67, you'll see a 30% reduction to your Primary Insurance Amount (PIA). On the other hand, claiming benefits after FRA will result in delayed retirement credits, boosting your PIA by 8% annually. These financial considerations are important aspects of retirement planning.