Social Security Benefits: When Is the Optimal Time to Claim?

As you approach retirement, one of the most critical decisions you will face is when to start receiving your Social Security benefits. The timing of this decision can significantly impact your financial health throughout your retirement. While there is no straight forward answer, understanding the factors involved in making this decision can help you determine the best age to take Social Security benefits.

Before You Retire

Your monthly Social Security Benefit amount is calculated based on the number of years you have worked and the taxes you have paid into the Social Security Benefits program. Social Security counts the years you have paid taxes as “credits” for years that you have worked. For example, if you were born in 1929 or afterward, you must have 40 credits to receive Social Security benefits when you retire. This is equal to about 10 years of work.

Your benefit amount is also calculated by the number of credits you have earned during your working years. Fortunately, the Social Security Administration has made it easier for you to verify your expected benefits by setting up an online account. It is worth double-checking your earnings annually to catch errors, if any, and factor in your expected benefits as you strategize for retirement.

What Age Should You Claim?

Social Security benefits can be claimed as early as age 62 or as late as age 70. Your Full Retirement Age (FRA) depends on the year you were born, typically ranging from 65 to 67. Here is a breakdown of the three common milestones to consider:

Early Claiming (Age 62)

While tempting, claiming benefits at 62 comes with a catch. Your benefits will be permanently reduced, often by around 25-30%, compared to what you would receive at your FRA. If you need immediate income and have no other financial options, this might be a consideration.

Full Retirement Age (FRA)

Claiming at your FRA ensures you receive your full, unreduced benefits. This is the baseline age to compare other options against.  The full retirement age is calculated based on the year you were born. For example, for those born between 1943 and 1954, the full retirement age was 66.  Anyone born between 1955 and 1959 has a normal retirement age between 66 and 67 – that is, 66 plus a certain number of months. For instance, if you were born in 1958, your FRA is 66 and eight months.  If your birth year is 1960 or after, your normal retirement age is 67.

Delayed Claiming (Age 70)

By waiting until age 70 to claim benefits, you can earn delayed retirement credits. These credits increase your benefit amount by about 8% per year past your FRA. This can be a strategic move for those who have the financial means to delay, as it leads to higher monthly benefits for life.

Factors That Can Impact Your Claiming Decision

Health and Longevity

If you are in good health and have a family history of living a long life then waiting until age 70 might be more appealing, as you could receive higher benefits over a longer retirement period. 

Financial Needs

You should also consider your financial situation.  Do you have other sources of income or will still work past age 62 or 65?  If so, then you should consider delaying until age 70.  On the other hand if you are retiring at your FRA or earlier and are on a fixed income then you may want to consider claiming early to cover your basic living expenses.

Personal Preferences

If you value the certainty, flexibility and freedom that comes with taking benefits early then claiming at 62 or at FRA might be suited for you.  If the largest possible benefit is a priority than waiting until age 70 might be a better path for you.

A Few Claiming Examples

Early Retiree

Jane retired at 62. She has no other sources of income and wants to enjoy her retirement years while she is still active and healthy. Claiming early makes sense for Jane, even though her benefits will be reduced. The immediate financial relief outweighs the reduction in benefits over time.

Financially Confident

John has a healthy retirement savings and pension. He decides to wait until 70 to maximize his Social Security benefits. This strategy aligns with his plan for a comfortable and secure late retirement, as he expects a longer lifespan due to his family history.

Claiming Strategically

Jack and Diane are a married couple. Diane, the higher earner, plans to delay her benefits until 70. In the meantime, Jack, the lower income earner claims a spousal benefit at his Full Retirement Age while continuing to work part-time. This strategy allows them to enjoy some income while still optimizing their future benefits.

Choose Your Unique Path

The best age to take Social Security benefits is a decision that should be tailored to your unique circumstances, goals, and priorities.  Balancing financial, health, and spousal considerations should guide your claiming decision. Remember that everyone’s situation is different, and there is no single correct path to choose. To make an informed decision, consider consulting with a Certified Financial Planner who can provide personalized guidance based on your specific financial situation and retirement aspirations. Ultimately, the goal is to create a retirement plan that is in harmony with your vision of financial security and fulfillment.

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