What is the best age to claim Social Security
5 MIN. READ
As you approach age 62, the question of when and how to claim Social Security will appear on the horizon. For many it feels like a daunting, even impossible task. Widespread rumors that Social Security will soon be gone only complicates the situation. Take heart; it’s not that bad, especially if you get experienced help.
When should you claim your benefits?
You can claim Social Security benefits at any time after you reach the age of 62,however it may not be the best time to do so. Based on the year you were born; you will have a designated full retirement age (“FRA”). Each month prior to reaching your FRA, your full benefit is reduced by a set amount which remains in place for the remainder of life. Conversely, if you wait beyond your FRA, you can receive an 8% increase in your benefit for each year you delay thru age 70. By so doing, your total monthly benefit is 132% of your primary benefit amount. However, this is only the beginning of your decision-making. There are many other factors to consider.
Whenever you decide to claim your benefits, be aware that the Social Security Administration requires up to four months to process your claim and you will not receive a benefit payment for at least a month after you file. Accordingly, the earliest you can file is at 61 years and nine months. Before you make the decision to file, there are several factors for you to consider.
Factors to consider
When making your decision, remember to include the following considerations:
Your health. Will you be well enough to continue working until age 70? If you need to retire for health reasons, then the cost/benefit analysis changes. You may receive less, but your health problems might not let you wait to file your claim. If you’re single and need the income to retire, then there’s no reason not to do so.
Although you can receive benefits prior to your FRA, you cannot receive Medicare until you are 65. In other words, if you retire and start receiving reduced benefits at 62, you may need to spend a large chunk of your monthly benefit on medical insurance. Given the cost of health insurance for an individual, this factor alone may make claiming at 62 a financial mistake since you will net so little.
Your break-even age. A break-even analysis determines the age at which the benefit you will receive is equal to the benefit you would receive by waiting to defer your benefit claim until a later age. For most people, the breakeven age is usually somewhere in your late 70’s or early 80’s. At a certain age, you will have received as much from the lower benefit as you would have by waiting; from that point forward, the higher benefit would be a reward to you for waiting.
The needs of your spouse. Equally important, if you’re married, consider your spouse. If he or she also claims at 62, the spousal benefit will be reduced in the same way as any early claim. If, however, you predecease a spouse who is relying on your earnings, he or she will receive your full monthly benefit from then on. Thus, the longer you wait, the greater the potential benefit for your spouse. A married couple will generally benefit more in the long run from waiting than a single person. This is even more true when both spouses have income, and the lower-earning spouse can claim his or her own earnings initially and later receive the higher-earning spouse’s survivor’s benefit.
Your expected longevity. On the other hand, potential longevity does need to be considered. If you’re a single woman relying on your own benefits, you should remember that you will likely outlive a single man of a similar age. Because you will depend on your Social Security income longer, inflation will impact you more. The effect of inflation should be included in your calculations when determining the right time to claim benefits.
Your tax burden. Taxes are also an important consideration in the timing of claiming your benefits and the Retirement Professors can help. If you have stopped working, or plan to do so when your benefits start, then it is less likely that your benefits will be subject to federal income tax. On the other hand, if you are still working, and are below your FRA, up to 85% of your benefits will be subject to income taxes at your marginal rate (that is, at the highest rate you pay). Another important point to consider is your other retirement assets and their distribution combined with your Social Security benefit. This combination could put you in a higher tax bracket, causing an increase in your tax burden.
Your potential benefit changes. Finally, although the story that the system is going bankrupt is a myth, there are real financial issues facing future benefits. The system has always been a pay-as-you-go system, beginning with 41 workers paying the benefit for one retiree in the 1930s and reaching today’s ratio, in which 2.4 workers pay the benefits of each retiree. It’s clear this ratio can’t continue, and some politically difficult changes will have to be made.
There are many, many ways to claim Social Security. The numbers cited can range from CNBC’s estimate of 81 strategies to Bankrate’s 567 ways. In either case, you’ll want to look at a variety of strategies and factors before you claim.
There are also a lot of ways to find advice for claiming Social Security. The SSA has a website and staff that are friendly and helpful but be prepared to wait on its phone lines. AARP also provides general advice and tips on when and how to claim. The internet can give you valuable information if you have time to sort through the 75,000,000 results that come up in the search “tips for claiming Social Security benefits.”
Call Financial & Tax Architects
Or, the financial professionals at Financial & Tax Architects (FTA) can help guide you through the maze of Social Security issues. They can help you make the right choices for you and your spouse to get the most, and the most appropriate, benefits for your retirement.