Your decision on when to retire and when to start collecting Social Security Benefits can greatly impact your retirement. People are generally living longer today than they did before, which causes them to choose to work longer and delay retirement to save more money. The age and method on when to start claiming Social Security Benefits are different for everyone; however, there are some strategies that will help you optimize your benefits, boost your retirement income and, potentially reduce the risk of outliving your savings:
- Delay claiming Social Security Benefits until your full retirement age or older: For people born in 1955, full retirement age is 66 years and two months, for those born after 1960, full retirement age is 67. However, the earlier to start claiming such benefits is at age 62, which can reduce the monthly benefit amount by as much as 30%. The percentage by which your benefit amount is reduced decreases each year until you reach your Full Retirement Age (FRA), at which point you are entitled to full, or unreduced benefits. If you can delay signing up for Social Security beyond your FRA, you will earn delayed retirement credits that increase your monthly benefit amount each year until you turn 70, at which point you are eligible to receive your largest benefit.
- Take advantage of Spousal Benefits: If you are married and your spouse has earned a larger Social Security benefit than yours, you are entitled to receive a spousal benefit based on your spouse’s earnings without changing the amount they receive. Ex-spouses can also collect benefits based on the higher earner’s record if they were married for at least ten years and have not remarried, and widows and widowers can collect 100% of the higher earner’s benefits instead of their own. You can claim a spousal benefit as early as age 62 as long as your spouse has already filed for Social Security (this is different for ex-spouses since they only need to be eligible to file for Social Security). Keep in mind that if you file before your FRA, your benefit amount is reduced based on how far you are from full retirement. For some married couples, it may be beneficial for the spouse with the lower lifetime earnings record to file for Social Security first on his or her record and delay collecting the higher-earner’s benefits. This strategy allows the couple to collect some income early in retirement and then collect larger monthly benefits later.
- Don’t file for benefits during high-income years: If you file for Social Security Benefits while you are still working, have not reached your FRA and your earnings exceed the yearly limit, your benefits will be reduced. For the highest earners (individuals who earn more than $34,000 annually and married couples who earn more than $44,000, as of 2018), up to 85% of Social Security benefits may be taxable. Delaying your benefits until after you have stopped working may allow you to keep a larger portion of your Social Security income, especially if you have not yet reached FRA.
- Minimize your taxable income while taking Social Security Benefits: You can keep working after you start collecting Social Security; however, you may want to watch how much you are earning, especially if you haven’t reached your FRA. Prior to reaching full retirement age, you will be able to earn up to $17,640 in 2019. After that, $1 will be deducted from your payment for every $2 that exceeds the limit. If you reach full retirement age in 2019, you will be able to earn $46,920; however, for every $3 earned over the 2019 limit, your Social Security benefits will be reduced by $1, but it will only apply to money earned in the months prior to hitting full retirement age. Once you hit full retirement age, no benefits will be withheld if you continue working.
- Work for at least 35 years: During your working years, you are paying into Social Security, which earns you credits toward your future benefits. Specifically, you receive a credit each time you earn a set amount of income in a given year. You need to earn at least 40 credits before you can claim Social Security. You could conceivably take Social Security with as few as 10 years of work; however, in order to make sure you maximize your Social Security benefits, you may want to work for at least 35 years (the SSA begins calculating your monthly benefits by averaging the inflation-adjusted salaries from your 35 highest-earning years). If you worked for fewer than 35, it will count some years when you earned zero toward that average, which will skew your monthly benefit result lower.
- Maximize your earnings during working years: Since the SSA determines your benefit based on your highest-earning years, it makes sense to boost your annual income, even if it’s just for a few years.
How and when you choose to collect your Social Security benefits ultimately depends on your unique circumstances, including your financial situation and family dynamics, health, longevity expectations, and retirement savings. Social Security can be a meaningful component of your income during retirement, and understanding the various claiming strategies can help maximize the benefits you have earned.