Social Security is a hot topic in our frequent conversations with clients. While it’s a complex issue, one of the questions we field most commonly is: “When should I file for Social Security benefits?” To help break it down, here are four key factors to consider as you make this critical decision.
- Your Full Retirement Age (FRA). Your FRA—the age when you are eligible to receive your full Social Security benefits—is determined by your birth year.
- If you were born between 1943 and 1954, your FRA is 66
- If you were born between 1955 and 1959, your FRA increases from 66 by two months per year (so for someone born in 1956, the FRA is 66 and four months) up to age 67
- If you were born in 1960 or after, your FRA is 67
It’s important to know that your benefits are reduced or increased if you file before or after reaching your FRA. Age 62 is the earliest you can file, and benefits top out at age 70, so there is no advantage to filing after that. If you file before your FRA, your benefits will be permanently reduced by 8% per year. Whereas, every year you wait to file beyond your FRA results in an increased benefit of 8% per year up to age 70—and that amount is locked in for the rest of your life and that of a surviving spouse. (Use this tool to determine your FRA and this one to calculate your benefits based on when you elect to receive them.)
- Your Benefits. The Social Security Administration (SSA) mails estimated monthly benefits statements to all workers three months prior to their 60th birthday. You can also create an account at ssa.gov to review your benefits at your convenience. We suggest taking this step sooner rather than later to help you with your retirement-income planning.
- Your Career Plans. If you file for benefits while you are still working, 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 $18,240 per year. So, if you plan to continue working and you haven’t hit your FRA, you may want to hold off on claiming benefits for now.
- Your Family Health History. Life expectancy should play a part in calculating your optimal filing time. While you get an 8% increase in benefits for every year you delay filing after your FRA, 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 can provide a form of longevity insurance for those who anticipate a lengthy, healthy retirement.
You’ll see much more on Social Security in future Financial Planning Friday 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 for a deeper dive on deciding when to file.
Please give us a call if you have questions about your specific circumstances. We’re here for you.