You can sign up to start collecting Social Security at any age once you turn 62. But it’s important to understand the implications of filing at different ages.
If you claim benefits at 62, you’ll reduce them on a permanent basis. That’s because you’re not entitled to your full monthly Social Security benefit based on your individual wage history until you reach full retirement age (FRA), which is either 66, 67, or somewhere in between, depending on your year of birth.
You can also delay your Social Security filing past FRA and boost your benefits by 8% a year in the process. That incentive applies until you reach the age of 70, at which point you might as well file for benefits because they can’t grow any further.
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Clearly, it’s important to put a lot of thought into when to claim Social Security. But before you come to a filing decision, you must run this important calculation.
What’s your break-even age?
Social Security is technically designed to pay you the same lifetime benefit regardless of when you initially file. The logic is that while claiming Social Security early will result in a reduced monthly benefit, you’ll have more monthly payments to collect. On the flipside, if you delay your filing, you’ll get more money on a monthly basis, but you’ll miss out on multiple years of collecting those monthly benefits.
All told, things should even out if you live an average lifespan. But it’s important to determine your break-even age based on your FRA so you can land on the right filing decision.
So, let’s say you’re eligible for a monthly Social Security benefit of $2,000 at an FRA of 67. Filing at age 62 will reduce your monthly income there to $1,400, but you’ll collect payments for five extra years.
In this case, your break-even age is roughly 78 and eight months. At that age, you’ll get about $280,000 in lifetime Social Security income regardless of whether you claim benefits at 62 versus 67. So if you think you’ll live past 78 and eight months, then filing at 67 will give you more lifetime income.
Meanwhile, let’s say you’re thinking of delaying your Social Security claim until age 70. Filing at that point will raise your monthly benefit to $2,480, and your break-even age will be 82 ½, at which point you’re looking at a lifetime benefit of $372,000. If you aren’t confident you’ll live until 82 1/2, then you may not want to wait until age 70 to start receiving Social Security.
Look at the big picture
Many people get caught up in the details of their monthly benefits when deciding when to claim Social Security. But taking your lifetime income from Social Security into account is just as important, if not more so.
As such, you shouldn’t move forward with plans to sign up for benefits until you run some break-even calculations and see what the numbers tell you. You may decide to change your filing strategy once you see how those break-even scenarios play out.
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