Questions about Social Security come up frequently in our financial planning conversations with clients. It’s a complex issue with many angles to consider, but we’d like to look at four key factors you might evaluate in deciding when to file for your Social Security benefits.
1) Your Full Retirement Age (FRA). Your FRA is the age when you are eligible to receive your full Social Security benefits. Your birth year determines your FRA. If you were born between 1943 and 1954, it is age 66. For those born between 1955 and 1960, FRA increases by two months a year (so for someone born in 1956, it would be 66 and four months) up to age 67 for people born in 1960 or after (see the “Age to Receive Full Social Security Benefits” table for a full breakdown).
You want to know your FRA because benefits are reduced or increased if you file before or after reaching it. Age 62 is the earliest you can file, and benefits top out at age 70 (there is no advantage to filing after age 70).
If you file before your FRA, your benefits will be permanently reduced by 8% per year.
On the other hand, every year that you wait to file beyond your FRA results in an increased benefit of 8% per year—and that amount lasts for the rest of your life and that of a surviving spouse. Check out this tool to figure out your FRA.
2) Your Benefits. The Social Security Administration (SSA) mails a statement to all workers three months before their 60th birthday that shows what their estimated monthly benefits are likely to be. (The SSA used to send statements to all taxpayers every year, but they stopped in an attempt to cut costs.) And you can also create an account at www.ssa.gov to review your benefits at your convenience. We suggest doing this sooner rather than later to help you with your retirement-income planning.
3) Your Career Plans. If you are still working and file for benefits, you may see those benefits reduced, particularly if you haven’t reached your FRA. Believe it or not, they could be cut by as much as $1 for every $2 you earn above $17,640 per year. So if you plan to continue working and you haven’t hit your FRA yet, you may want to hold off claiming any benefits for now.
4) Your Family Health History. Life expectancy plays a large role in calculating your optimal filing time. While you get an 8% increase in your benefits for every year after your FRA that you delay, the sum of all benefits received by waiting until age 70 often won’t exceed what you’d tally by filing earlier unless you live into your late 70s or early 80s. However, delaying benefits to lock in that yearly increase does provide a form of longevity insurance for those who anticipate a long, healthy retirement.
There is much more to say on Social Security that you’ll see in future FPF posts. You can also read our special report, Social Security’s Role in Your Retirement, and listen to our “When Should You File for Social Security?” podcast episode.
In the meantime, please give us a call at (800) 492-6868 if you have any questions about your own Social Security decisions or any of our financial planning services.
This material is distributed for informational purposes only. The investment ideas and opinions contained herein should not be viewed as recommendations or personal investment advice or considered an offer to buy or sell specific securities. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.
Our statements and opinions are subject to change without notice and should be considered only as part of a diversified portfolio. You may request a free copy of the firm’s Form ADV Part 2, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged.
Past performance is not an indication of future returns. We do not provide legal or tax advice, nor sell insurance products. Tax, legal and insurance information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice, or as advice on whether to buy or surrender any insurance products. Always consult an attorney, tax professional or licensed insurance professional regarding your specific legal or tax situation, or insurance needs.
Companies mentioned in this article are not necessarily held in client portfolios and our references to them should not be viewed as a recommendation to buy, sell or hold any of them.
Barron’s Top 100 Independent Wealth Advisors (2019) rankings reflect the volume of assets overseen by participating advisers and their teams, revenues generated for the firms and the quality of the advisers’ practices, as determined by its editors. Awards referenced herein do not evaluate client experience or investment performance and are not indicative of future performance. Awards and rankings are generally based on information submitted by the participating firms. Adviser Investments, LLC, does not pay a fee to participate in any of the awards referenced above.
The Adviser You Can Talk To Podcast is a trademark of Adviser Investments, LLC. Registration pending.
© 2019 Adviser Investments, LLC. All Rights Reserved.