Michael Callahan
“When should I claim Social Security?” is one of the top retirement planning questions that clients have for their financial advisors. It’s absolutely a big decision, and what’s right for one person won’t necessarily be right for another. Sure, you’re eligible to claim benefits at age 62—but should you? Does it make more sense to wait until your full retirement age, or even delay your benefits until you’re closer to 70?
This decision doesn’t have to coincide with your actual retirement if you have income sources outside of your salary, but it should be part of a larger retirement planning conversation with your financial advisors. There are pros and cons to every one of your options. Make sure you understand all the implications before claiming your benefits.
Claiming Social Security Benefits Early
Many people claim Social Security as soon as they turn 62 and are able to access their benefits. This might be the right choice for someone who urgently needs money and doesn’t have a strong financial safety net in place. In some cases, a person’s health status motivates them to claim Social Security as soon as they’re able. Someone who has a serious diagnosis and doesn’t expect to live past age 70 may opt to retire and take their benefits starting at 62 as a way to fund several years of adventure with their spouse. And sometimes, one member of a married couple will take their benefit early to supplement the couple’s income, while the other spouse holds off and lets their benefits grow.
While it makes sense for some people, taking Social Security early generally goes against what financial planners advise. The SSA uses your past earnings to calculate the primary insurance amount you’re entitled to when you reach full retirement age. When you claim benefits early, the amount you receive is reduced by a percentage for every month left until your full retirement age.
Taking benefits at 62 can reduce your benefit by as much as 30 percent. Your monthly amount is locked in once you start receiving Social Security, so someone who lives another 30 years may lose out on thousands and thousands of dollars during retirement by taking Social Security at age 62 instead of 65 or 66.
If you do take benefits early and change your mind later, you may withdraw your application within 12 months of filing and file again later when you reach or pass your full retirement age—but you must be able to repay all your benefits.
Claiming Social Security Benefits at Full Retirement Age
If you wait until your full retirement age to claim benefits, you’ll get 100 percent of your primary insurance amount every month for the rest of your life. This strategy may allow you to balance quality of life (being able to stop working and enjoy retirement) with your financial goals (having enough money to comfortably cover living expenses in retirement without exhausting your savings).
Delaying Social Security Benefits
Your benefit increases for every month past your FRA that you wait to claim Social Security. If you’re in good health and have other income sources, waiting to claim benefits until closer to 70 locks in the highest possible benefit amount.
If you continue to work past your full retirement age, you may also be raising your future benefit by earning a high salary. The SSA calculates your benefit based on the 35 years of your highest earnings. If you’re making a lot more at 67, 68 and 69 than you did earlier in your career, those income numbers will replace lower numbers from past years and boost your benefit a little more. (That said, there is a cap on retirement benefits, so continuing to work won’t help you increase your monthly benefit if you’ve already earned the max; for someone who retires at 70 in 2022, the monthly benefit is capped at $4,194.)
Of course, there’s a potential downside of delaying. Someone who ends up dying in their late 60s may have spent their last few years working with the goal of maximizing retirement benefits, only to miss out on enjoying a satisfying retirement.
Deciding When to Claim Social Security
So what makes the most sense for you? Should you apply for Social Security as soon as possible and trust that you’ve put strong enough financial plans in place to supplement your reduced benefits? Or hope that you have decades left to live and delay benefits to maximize your overall income?
As a general rule, you won’t regret waiting to start taking Social Security payments. Perhaps you have more nuanced questions such as, what is your eligibility if you are divorced, or you’re not sure which spouse should be the first to start claiming. You can always speak with your financial advisor about your unique circumstances.
As a starting point to understanding your unique circumstances and potential payments, we also recommend creating a portal on the Social Security website. From there you can use their benefits calculator to determine your payment amount based on whatever factors you choose. You can also confirm that the agency has all of your information recorded correctly. An error in your income history, marital status or other details could impact your payment calculation. Confirm the accuracy of your information to help ensure you’re not leaving money on the table. In fact, if you were to come to our office, this is the first thing we would do together to start to discuss your benefits.
Talk to Sachetta, LLC’s advisors about how your future plans will affect your Social Security benefits, and what kinds of strategies you can use to maximize your retirement income. Deciding how to time your benefits is part of a larger conversation with your financial advisors. Contact us today.
Michael J Callahan, CPA, CFP®, MST, is a Certified Financial Planner™ practitioner, Certified Public Accountant, and holds a Master’s Degree in Taxation from Bentley University. Mike has been involved in personal financial planning, as well as both business and individual taxation for more than 15 years. Our ideas about money are formed by our life experiences. Over the years, Mike has seen those close to him make common money mistakes from not having enough life insurance, to not doing the proper estate planning. When he received an inheritance in college and started looking into how he could use it to achieve his goals, he realized that he could use those experiences to help others. He changed his major to Finance, and the rest is history.