There aren't a lot of guarantees in retirement, which is part of what makes Social Security so appealing. With living expenses rising all the time, it's reassuring to know you can expect regular monthly checks to help you out. But will they be enough to cover your expenses?
That depends in part on the choices you make. If you'd like to guarantee yourself larger Social Security checks in retirement, here's one simple way to make that happen.
It's all in the timing
There are two major factors that affect how much money you get from Social Security: how much you earn during your working years and when you sign up for benefits. You probably know that a larger income brings larger Social Security checks, but few people understand how the age at which they sign up for benefits fits into all of this.
You're able to sign up for Social Security as soon as you turn 62, but you must wait until your full retirement age, or FRA, if you want the full amount you're owed based on your work history. Every month you receive benefits before this age reduces your checks slightly. And every month you delay benefits increases your checks, at least until you reach your maximum benefit at 70.
The rate at which your checks increase depends on your age and your FRA. Here's a table showing how quickly benefits increase for people with FRAs of 66 and 67.
Benefits Increase by:
Full Retirement Age of 66
Full Retirement Age of 67
5/12 of 1% per month
From 62 to 63
From 62 to 64
5/9 of 1% per month
From 63 to 66
From 64 to 67
2/3 of 1% per month
From 66 to 70
From 67 to 70
So if your FRA is 67 and you planned to sign up for Social Security at 62, delaying by 1 month would help you avoid a 5/12 of 1% benefit reduction. Delaying benefits for one year would increase your checks by 5 percentage points versus signing up right away at 62, from 70% of FRA benefits to 75%. If you qualified for a $1,500 benefit at 62, delaying until 63 would raise your checks to $1,607 per month.
The biggest gains come when you delay benefits past your FRA. Then, your checks grow by 2/3 of 1% per month, or about 8 percentage points per year. If you have a FRA of 66, delaying benefits until 70 nets you 132% of your full benefit per check. Those with a FRA of 67 get 124% of their full benefit per check at 70.
To return to our example of a $1,500 benefit at 62, you'd get about $2,657 per month by delaying benefits until 70 if your FRA is 67. That's over $1,000 more per check.
Is it a smart play for you?
Delaying benefits has some definite perks, but you have to live long enough to make it worthwhile. If you plan to delay benefits until 70 but then you die from a health condition at 68, you won't get anything from Social Security.
No one knows exactly what the future holds, but if you have some kind of an estimate, you can figure out which starting age will get you the most money overall. First, make a my Social Security account so you can estimate your monthly Social Security benefit at various ages. Then, multiply these estimated monthly benefits by 12 to get your estimated annual benefits. Finally, multiply each estimated annual benefit by the number of years you expect to receive benefits to see which age will give you the most overall. For example, a $1,500 benefit starting at 62 and claimed for 30 years would result in a lifetime benefit of $540,000.
Ideally, you can wait to sign up until the age when you'll get the most money overall. But this isn't always financially feasible. If you're not able to delay benefits as long as you'd like, consider delaying a month or two to boost your checks slightly. Or you could think about remaining in the workforce for longer so you have a source of income other than Social Security.
There isn't a clear-cut right or wrong here. It's up to you to decide when you'd like to sign up for benefits, but thinking about how your starting age will influence the size of your checks can help you make the best possible decision.
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