Social Security retirement benefits can start between age 62 and 70, but you have to make a decision about when to claim them.
Once you've filed for benefits, options for changing your mind are limited -- so you don't want to make the wrong decision. Before you ask the Social Security Administration to start sending your checks, there are five key tasks you should check off your to-do list.
Image source: Getty Images.
1. Check your earnings record
The 35 years when you earned the most money are used to determine the amount of your Social Security benefit. The SSA reviews your earnings record, adjusts wages for inflation, determines your average monthly earnings, and gives you benefits equaling a percent of them.
You don't want your earnings history to be incorrect because your record has errors, nor do you want years of $0 wages included in your average because you didn't work for a full 35 years. To make sure neither of those things happen, sign into your online Social Security account and check your earnings history.
If you find mistakes, you can correct them by providing the SSA with documentation of your actual earnings. And if you discover your earnings history is too short, you may decide to put in some extra time on the job so you can avoid having your average wage reduced by years of $0 earnings being factored in.
2. Determine your full retirement age
Every Social Security beneficiary has been assigned a full retirement age under the law. Depending on when you were born, it's between 66 and 67 years of age. You must claim benefits at that age to get the standard benefit that you're entitled to based on your work history. The chart below shows when your FRA is, depending when you were born.
|
If you were born in |
Your full retirement age is: |
|---|---|
|
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 |
Table source: Social Security Administration.
3. Evaluate how your age affects your benefits claim
Knowing your FRA is important because many people claim either before it or after it, and thus don't receive their standard benefit. In fact, if you start your retirement benefits any time but FRA, the size of your monthly check could be very different because early filing penalties apply for every single month you claim early, while you get a benefit boost from delayed retirement credits for each month you claim late.
The chart below shows how much your retirement benefits could rise or fall depending on when you claim them relative to your full retirement age.
|
If you claim retirement benefits at: |
With an FRA of |
Your monthly checks will be reduced by: |
If you claim benefits at: | With an FRA of | Your monthly checks will increase by: |
|---|---|---|---|---|---|
|
66 |
67 |
6.7% |
67 |
66 |
8% |
|
65 |
66 |
6.7% |
68 |
66 |
16% |
|
65 |
67 |
13.3% |
68 |
67 |
8% |
|
64 |
66 |
13.3% |
69 |
66 |
24% |
|
64 |
67 |
20% |
69 |
67 |
16% |
|
63 |
66 |
20% |
70 |
66 |
32% |
|
63 |
67 |
25% |
70 |
67 |
24% |
|
62 |
66 |
25% |
|||
|
62 |
67 |
30% |
Table calculations: Author
4. Calculate your break even point
If you claim retirement benefits any time after the age of 62, this would mean not getting checks in some months (or years) when you were potentially entitled to receive them. You''ll get a higher benefit later, and this added monthly money should, over time, make up for the checks you missed out on. The problem is, you have to live long enough for that to happen.
To determine how long that will take, you have to calculate your "break even" point. You do this by:
- Estimating your monthly benefit at the lower age. If you'd have received $1,500 a month at an FRA of 67 and you claim at 62, your monthly benefit would be $1,050 after the 30% reduction due to early filing is applied.
- Determine how much money you'll miss out on during the years you'll wait. If you're comparing claiming at 62 versus 67, you'll miss out on five years of $1,050 monthly checks or $63,000.
- Determine how much higher your checks will be at the later age. At 67, you'd get your standard benefit of $1,500 so your checks would be $450 a month higher.
- Calculate how long it will take you to break even. You'll need to receive the extra $450 in monthly benefits for 140 months to make up for the $63,000 in forgone income over the years ($63,000 / $450).
In this example, if you live 11.6 years after starting benefits at 67 and reach the age of 78.6, you'd end up with more lifetime money than if you'd claimed early since you'll have made back your $63,000 and will continue receiving a higher monthly benefit for life.
5. Consider your health
No one knows whether they are going to live long enough to break even if they wait to claim Social Security benefits. Most retirees end up better off if they wait, but most isn't all.
Consider your current health status and family history to get an idea of your life expectancy, and use that to guide you in deciding whether you're better off claiming benefits early or gambling on living long enough to get more monthly benefits by waiting.
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