When is the Right Time to Take Social Security Benefits?
This question is common as you approach retirement, and it is an important decision that will impact the amount of retirement benefits you’ll receive. If you wait to take your benefits at full retirement age, you’ll receive 100% of your calculated amount, but if you claim earlier then you’ll receive a lesser amount and be subject to earning rules that can impact your benefits. You have another option to wait past full retirement age and receive higher amount of benefits! The decision is important because claiming benefits at 70 years old results in a payment of perhaps 77% more than what you would get at age 62. So, what is the best time to start taking your benefits?
The decision really depends on your personal situation. Most people say that maximizing retirement income is important to them, yet most people don’t wait for the larger amount received at age 70 and will start receiving benefits earlier. There are many reasons for taking benefits before retirement age including health, family or financial considerations, especially because the break-even point of taking benefits earlier for a longer period versus a higher amount later only matters if you live long enough to reach it.
Some of the reasons for claiming benefits early:
· Your working situation changes, and you need to replace your earned income.
· You are encountering health issues, and the benefits are necessary to offset those increased costs.
· You are single and you don’t have to worry about the impact of an early claim on a surviving spouse.
But there are good reasons to wait:
· You are in good health, and you have a family history of living longer, so having a higher monthly payment will help you over a longer period.
· Your retirement strategy enables you to draw a pension or 401K withdrawals at retirement and the benefits are not needed immediately.
· You are staying employed.
It is important to understand that if you choose to continue to work and elect social security benefits early can result in reduced benefits until you reach full retirement age. At full retirement age you can claim full benefits no matter how much you are still earning.
The decision gets more complicated for married individuals. The decision may be influenced by your spouse’s work history and potential Social Security benefits. Some of the considerations include the following:
· If your spouse’s retirement benefit is lower than yours, they may be eligible to receive a spousal benefit based on your earnings record. This spousal benefit can be between one-third and one-half of your benefit but only becomes available once you claim social security. You may be able to maximize household benefits by delaying your claim to your benefits until age 70, while your spouse, the lower earner, claims their own benefit earlier. When you eventually file, your spouse switches to the spousal benefit, which may be higher than their individual benefit.
· If your spouse does not qualify for retirement benefits based on their own earnings record, it may be a good idea for you to elect Social Security early. Even though you will receive a lower benefit, your spouse can elect spousal benefits, which leads to two income sources from your earnings.
· When one spouse dies, the other becomes eligible to receive the deceased’s entire benefit payment if it is higher than their own benefit. If you earn significantly more than your spouse, wait as long as possible to create the highest survivor benefit.
It is good practice to check your annual earnings statement and estimated benefits at different ages by getting your social security benefits statement. You can request your statement at the Social Security website to get the information and see what benefits you can expect to receive and help you better understand what your best option is to elect your benefits. It is also wise to consult a financial adviser about what your best option is.