The income you get from Social Security is important for a few reasons. First, you might rely on it in the absence of bringing a robust nest egg into retirement with you. Secondly, your expenses in retirement might increase more than expected due to factors like inflation and healthcare costs. And finally, the monthly Social Security benefit you lock in is the benefit you can look forward to for life, whereas other income sources may not be as stable.
That’s why it’s essential to lock in a monthly benefit that will allow you to enjoy retirement to the fullest and cover your senior living costs without worry. But many seniors don’t realize that one simple decision could spell the difference between a higher benefit and a much lower one.
Choose the right filing age
Social Security doesn’t pay the same monthly benefit to everyone who’s entitled to it. Rather, your benefit will be calculated based on your personal earnings history.
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But there’s another factor that will determine how much monthly income you receive — your filing age. And in that regard, you get choices.
The earliest age to claim Social Security is age 62. But you’re not entitled to your full monthly benefit until you reach full retirement age, or FRA. And that age is either 66, 67, or somewhere in between, depending on when you were born.
There’s also the option to delay your Social Security claim past FRA. For each year you do, your monthly benefit will grow, up until the age of 70.
So, let’s say you’re entitled to a monthly benefit of $1,800 at an FRA of 67. You might think that claiming Social Security early won’t make a huge difference. But actually, check out what monthly benefit you might end up with based on your filing age:
|
Filing Age |
Monthly Benefit |
|---|---|
|
62 |
$1,260 |
|
63 |
$1,350 |
|
64 |
$1,440 |
|
65 |
$1,560 |
|
66 |
$1,680 |
|
67 |
$1,800 |
|
68 |
$1,944 |
|
69 |
$2,088 |
|
70 |
$2,232 |
Calculations by author.
As you can see, there’s a huge difference between claiming benefits at age 62 versus waiting until age 70 — a $972 difference, to be precise. Of course, the upside of filing for benefits at age 62 is getting your money sooner. Waiting until age 70 could mean having to delay your retirement, and after a lifetime of hard work, that may be less than ideal. The point, however, is to understand how your filing age will impact the amount of money you receive monthly from Social Security — and then claim your benefits accordingly.
If you’re not sure where the above numbers came from, here’s the scoop. For each year you file for Social Security ahead of FRA, your benefit is reduced by 6.67% your first three years of claiming ahead of time and then 5% per year after that. So if you sign up for Social Security three years early, you’re looking at a 20% hit to your benefits. Sign up five years early, and you’ll face a 30% hit.
Meanwhile, for each year you delay your filing past FRA, your benefit grows 8%. So if you postpone your claim for three years, you can boost your Social Security paycheck by 24%.
Now that you’re in tune with the math, use it when deciding when to claim benefits. Doing so could prevent you from making a mistake. Or, to put it more positively, it could inspire you to sign up at an age that gives you the income you need to make the most of your retirement.