Americans can file to start taking Social Security as early as age 62, but that doesn’t mean you should. The decision about when to apply for your federal retirement benefit is a major one, because it can have significant effects on your income for the rest of your life.
So, before you sign, seal, and submit your Social Security application, make sure you know the answers to the following four questions.
1. How will my age affect the size of my Social Security checks?
The older you are when you claim Social Security, the larger your monthly benefit will be. It all hinges on your full retirement age or FRA, the age at which you qualify for what the government considers your “full benefit” based on your earnings history. Your FRA is controlled by your birth year, as shown in the table below.
If Your Birth Year Is…
Then Your FRA Is…
1943 to 1954
66 years and two months
66 years and four months
66 years and six months
66 years and eight months
66 years and 10 months
1960 or later
If you claim your benefits before you reach your FRA, Social Security’s formula will shrink the size of your monthly benefit incrementally for each month early that you do so, up to a maximum reduction of 30%. If you wait to claim later than your FRA, you should qualify for delayed retirement credits. These incremental bonuses can increase the size of your monthly checks by as much as 32%.
There are formulas that define how these reductions and increases are calculated, so you can do the math yourself. But there’s an easier way to estimate what your benefit would be under various scenarios: Create an account with my Social Security, verify your identity, and log in.
The personalized interface will show you a customizable chart of your prospective benefits at different claiming ages between 62 and 70. Use that to estimate your income if you claimed today vs. next year or the year after. There’s no point in waiting beyond age 70 to claim, though, since that’s when you stop accruing delayed retirement credits.
2. How will I use my Social Security income?
If you don’t have a clear sense of how you’ll use your Social Security income, pause and think it through. You might need that income boost to pay your bills, but that raises more questions. For example:
How much more income do you need to cover your expenses?
Will your Social Security benefit be large enough to do what you’ll need it to if you claim today?
Is there a better way that you could generate the income you need?
If these questions lead you to conclude that the size of your benefit if you claimed today would be large enough, or that you have no other way to generate the income you need, great. You can move forward confidently. But there are other conclusions that might encourage you to wait on taking Social Security, such as:
You don’t truly need the money right now. There’s nothing wrong with claiming immediately because you want to, as long as you recognize that you’re giving up a higher monthly benefit later.
The benefit you’ll get by claiming now would not be sufficient to allow you to pay your bills. If you can’t or don’t want to keep working, you can still claim now, but you’ll have to adjust your lifestyle.
You could work part-time to increase your income. A part-time job could be a more fulfilling way to supplement your income from other sources.
3. Will the IRS and/or my state tax my Social Security?
The federal tax rules for Social Security warrant some explanation. To start, you should know about a value called combined income. The formula for your combined income is:
Your adjusted gross income + nontaxable interest income + half of your Social Security
The table below shows how your combined income relates to the taxability of your Social Security benefit.
Percentage of Social Security Income Subject to Federal Taxes
$25,000 to $34,000
$32,000 to $44,000
At the state level, 37 states do not tax Social Security at all. The others may offer exemptions based on your income. Check with your tax accountant or your state tax department.
4. What is my estimated lifespan?
How long you expect to live is a factor here because it affects the cumulative amount of benefits you’ll receive from the program.
If you are in poor health or have a condition that leads you to expect that you won’t have a longer-than-average lifespan, claiming as soon as possible is likely to maximize your total Social Security benefits, as well as your quality of life. Your monthly benefit will be lower, but you should receive more of those payments.
On the other hand, if you expect to live to see your 80s or 90s, you may want to hold out for the higher monthly benefits that delayed retirement credits will provide you. You’ll still get fewer checks overall, but after a certain point, their enhanced size should more than make up for that.
The concept of a break-even point applies here. Your break-even age with respect to Social Security is when the larger monthly benefit you get from waiting to claim makes up for the fewer checks you receive. In theory, the Social Security formula should pay the same total benefit no matter when you claim. But the formula doesn’t account well for anyone who lives longer or shorter than the average lifespan.
You can find lifespan calculators with a quick online search. This isn’t an exact science, so try a few different ones to see how the various estimates compare. Those that ask lifestyle questions and factor your answers into their calculations should be more accurate than those that only ask for your age and gender.
As a precaution, don’t share any personally identifiable information (such as your first and last name) with these calculators.
Balancing income and quality of life
Maximizing your income in retirement is a good goal to have, but you don’t want to pursue it at the expense of your quality of life. That’s the balance you should be looking to achieve when timing your Social Security claim.
If you’re more concerned about how long your nest egg will last, but you’re healthy, waiting to file may be the right thing to do. But if you can live comfortably on the benefit available to you today, then you may want to go for it: File that Social Security application and step more confidently into the next phase of your life.
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