The decision to sign up for Social Security could end up being one of the most important ones you’ll make in the course of your retirement. After all, Social Security will pay you a monthly benefit for the rest of your life, so it’s really important to file for yours at the right time.
With that in mind, here are three questions you must be able to answer before you even think about claiming your benefits.
1. What’s my full retirement age?
The monthly Social Security benefit you’re entitled to will be based on your personal earnings history — specifically, the amount you earned during your 35 highest-paid years in the workforce. But the age at which you file for benefits will also dictate how much of a payout you collect each month.
Your full monthly benefit is yours once you reach full retirement age, or FRA. FRA depends on your year of birth, as follows:
Year of Birth
Full Retirement Age
66 and 2 months
66 and 4 months
66 and 6 months
66 and 8 months
66 and 10 months
1960 or later
You’re allowed to sign up for Social Security as early as age 62, or you can delay your filing past FRA and boost your benefits by 8% a year until you turn 70. But if you claim those benefits ahead of FRA, you’ll reduce them permanently in the process, so you may want to wait until at least FRA to sign up. And even if you decide that it’s worth filing early and taking that hit, you should at least know what age allows you to claim your benefits in full.
2. What do my savings look like?
Social Security will replace about 40% of your former paycheck if you’re an average earner. But most seniors need more like 70% to 80% of their former income to maintain a decent quality of life. As such, before you decide when to sign up for Social Security, you’ll need to see where you stand in terms of retirement savings.
If you don’t have a lot of money saved for your senior years, you’ll be more reliant on Social Security to pay the bills — in which case, waiting until FRA or even delaying your filing past FRA could make a lot of sense. On the other hand, if you’re entering retirement with $1 million or more in savings, you may not need Social Security as badly. In that case, you may decide to file for benefits ahead of FRA if doing so allows you to achieve your goal of retiring early.
3. Will I work part-time in retirement?
Working part-time in retirement is a good way to stay busy while boosting your income. But while you’re allowed to work and collect Social Security at the same time, if you start taking benefits before FRA and earn a paycheck from a job at the same time, you may risk having some of your benefits withheld.
Each year, you’re allowed to earn up to a certain limit without impacting your benefits. In 2021, that limit is $18,960. If you earn more than that while collecting Social Security and you haven’t yet reached FRA, you’ll have $1 in benefits withheld per $2 in earnings over that threshold.
The earnings limit increases to $50,520 if you’ll be reaching FRA this year, and from there, you’ll have $1 in benefits withheld per $3 in earnings. And once you reach FRA, your earnings won’t matter at all.
Say you’re 64 years old and your FRA is 66 and 6 months. If you’re planning to go from working full-time to a partial retirement where you work part-time, you may want to hold off on claiming Social Security if your earnings will be high enough to cause your benefits to be withheld. This is just one example, but the point is that you should consider your work-related plans before signing up for benefits.
Maybe you’re ready to claim Social Security. Or maybe the better choice is to wait. Either way, make sure you can answer all of these questions before landing on a decision.
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