Starting Social Security is a big deal. And you get choices as to when to do it.
The earliest age you can sign up for Social Security is 62, but you’re not entitled to your full monthly benefit based on your earnings history until full retirement age (FRA). FRA is 67 for anyone born in 1960 or later. And if you file for Social Security before FRA, you’ll reduce your monthly benefit for life.
You can also opt to delay your Social Security filing past FRA. For each year you do, up until age 70, your monthly benefit will grow 8%. And that boost will be yours to enjoy for life, too.
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Clearly, there’s a lot at stake when you first decide to start taking benefits. But you should really base your decision on one important number.
What does your savings balance look like?
The less money you have in retirement savings, the more reliant on Social Security you’re apt to be. So if your savings balance is on the low side, it could pay to wait until FRA to claim Social Security or delay your filing beyond FRA. On the other hand, if you have a nice amount of savings, you may be OK to file for Social Security before FRA, even if that means accepting a reduced benefit for life.
All that said, when you look at your retirement savings balance, you don’t just want to look at a single number. You want to figure out how much annual income it allows for.
The number you see when you assess your nest egg can be deceptive. A savings balance of $1 million can seem like a lot of money. But if you withdraw from your nest egg at a rate of 4% a year, that’s only $40,000 in annual retirement income. So you’ll really need to look at the big picture when deciding when to claim your benefits.
Keep in mind that the longer you expect your retirement to be, the more conservative a withdrawal rate you may want to go with. So if you’re retiring in your early 60s, you might apply a lower withdrawal rate than someone retiring in their late 60s or early 70s.
Another key number to keep in mind
Not only should you see what your retirement savings balance looks like before claiming Social Security, but you should also get an estimate of your monthly benefit. If you can’t locate a physical copy of your latest Social Security earnings statement, you can create an account at SSA.gov and access it there.
Knowing what benefit you’re entitled to will, coupled with your savings data, give you a more complete look at your financial picture. And that could help you make a more informed decision.
Remember that there’s no such thing as a right or wrong age for claiming Social Security. It’s all based on what’s good for you. But if you do a thorough assessment of your savings, it should help you land on a filing age that ultimately serves you well.
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