While it may be tempting to file for Social Security as soon as you become eligible at 62, at least press the “pause” button and think about the advantages and disadvantages of doing so; some of which I will cover below.
To qualify for Social Security retirement benefits when you retire, you need to have collected 40 lifetime work credits.
You can earn a maximum of four credits per year, meaning you’ll have had to have worked at least 10 years during your lifetime to qualify based on your own work and earnings history.
There are benefits available to spouses or divorced spouses even if they have not worked as well as to survivors, so it is important to determine whether this may be an option for you.
The earliest age a person can begin receiving benefits from Social Security is age 62, although taking benefits as early as possible means accepting a reduction in your permanent payout.
Earlier claims can often make sense for people in poor health, those who had a substantially lower lifetime income than their spouse, people who aren’t in any way reliant on Social Security income (e.g., the wealthy), and those who can’t find work or generate income.
The SSA offers a pretty big incentive to seniors who are patient. For each year that an individual holds off on filing for benefits, their eventual payout grows by approximately 8%. Claim benefits before your FRA, and you could face up to a 25% to 30% permanent reduction in your monthly payout.
Wait until after your FRA to file your claim, and your payout could be as much as 32% higher than what you’d receive at your full retirement age.
Once an individual has reached age 70, his or her benefits will stop accruing on an annual basis. You could technically still hold off on filing a claim for Social Security until later, but there’s no longer any incentive to wait.
Healthy individuals, higher-earning spouses, and people with little to nothing saved often gain from waiting as long as possible to file for benefits however, there are other strategies that this should be combined with.
At What Age Do Americans File for Social Security?
One significant common trap many fall into is underestimating their life expectancy. So when planning for Social Security try to be a bit optimistic as it’s generally wise to use a slightly higher life expectancy from a planning perspective.
This is because Social Security is a lifetime benefit so it’s important to accumulate as many Delayed Retirement Credits as possible, in-line with your broader Social Security strategy so that over the long-term you receive the highest monthly benefit for the longest period of time.
Let’s move onto another common mistake that trips up what are otherwise good intentions: Working while collecting Social Security.
First of all, the Earnings Test as it’s called applies to anyone under Full Retirement Age. The Earnings Limit for 2017 is $16,920 per year and this Earnings Limit is adjusted annually for inflation.
In the year that you reach your Full Retirement Age, but before your birthday that year, you have a bit more flexibility because the Earnings Limit increases to $44,880.
Once you have reached your Full Retirement Age, the Earnings Limit disappears entirely so you can earn as much money as you’re able to and not worry about the earnings test.
So what happens when you work and you are receiving Social Security? Well, that’s when the Earnings Test can apply assuming you’re under your Full Retirement Age as mentioned.
If you absolutely need the money and have no other options, then you may need to claim your Social Security early, but if you don’t need the money immediately, be sure that you develop a plan to maximize your Social Security benefits.
There are many strategies to maximize your benefits regardless of whether you’re single, married, divorced, or a survivor and you’ll thank yourself later that you took the time do this. This one critically important retirement decision will remain with you, and if you’re married, your spouse, for the rest of your life, so be sure to get it right.
And because Social Security is so complex with 2,728 rules, we always recommend working with a Social Security advisor that can assist you.
As a reminder, here is a quick glance again at the Full Retirement Age chart for those with a Full Retirement Age of 66 which is most people.
As you can see, at 66 you receive 100% of your Full Retirement Age amount and 132% of that amount at age 70.
Keep in mind though, and especially for married couples, those that are divorced, or are survivors, there are ways to increase this even further by implementing some of the other creative Social Security strategies that are available.
When claiming YOUR Social Security don’t think about yourself and make the mistake of failing to coordinate spousal benefits.
This is a very common error that many make and it’s a costly one. Making this mistake along can easily cost you on average $40 to $50k in spousal benefits.
This same concept also applies to survivor benefits. If you make a mistake when it comes to your spousal benefit strategy, your eventual survivor benefit can also be impacted and can cost another $70k to $80k on average.
Be careful when implementing your selected strategy and keep in mind that it is the higher earner that needs to be the most careful because it is the higher earner’s benefit that will be inherited by the surviving spouse.
The Bottom Line
Making the optimal Social Security claiming decision and maximizing your benefits is complicated.
You should work with a Social Security advisor that is an expert in the myriad of strategies that are available to you.
Determining which Social Security strategy is best for you and your family requires careful analysis as each situation is different.
If you have questions and would like to schedule a Free Initial Consultation with an advisor, you can do so by clicking here.
Talk with a Social Security Advisor and obtain expert advice that is customized to your unique circumstances.
Until next time,
Matthew Allen is the Co-Founder/CEO of Social Security Advisors and creator of the new course Maximizing Your Social Security produced in conjunction with Weiss Educational Services. Matthew has helped thousands of seniors maximize their Social Security benefits and avoid costly mistakes when filing. Matthew has been at the forefront of financial services for over a decade. In addition to co-founding Social Security Advisors, Matthew also founded The Universal Group of Companies, a private investment firm, in 2004. From 2000 to 2004, Matthew was a NYSE Market Maker with LaBranche & Co., a Fortune 500 New York Stock Exchange firm.