One of the most critical decisions you can make regarding your retirement is when you choose to claim Social Security. Deciding when to claim Social Security can significantly affect your monthly income. It can be complicated, so it’s essential to understand how Social Security works, your options for claiming, and what factors you should consider before doing so.
Before You Retire
Your monthly Social Security benefit amount is calculated based on the number of years you have worked and the taxes you have paid into the Social Security Benefits program. Social Security counts the years you have paid taxes as “credits” for years you have worked. For example, if you were born in 1929 or afterward, you must have 40 credits to receive Social Security benefits when you retire — equal to about ten years of work.
Your benefit amount is also calculated by the number of credits you’ve earned during your working years. Fortunately, the Social Security Administration has made verifying your expected benefits easier by setting up an online benefits calculator. It is worth double-checking your earnings to catch errors and factor in your expected benefits as you strategize for retirement.
What Age Should You Claim?
Several ages should be considered when deciding when to claim Social Security.
- Early Retirement Age: The earliest age you can claim Social Security benefits is 62. However, if you claim Social Security early, you will be penalized for not waiting until the full retirement age.
- Full Retirement Age: This is when you are eligible to receive the full amount of your Social Security benefits. The full retirement age is calculated based on the year you were born. For example, for those born between 1943 and 1954, the full retirement age was 66. If you were born between 1955 and 1960, the full retirement age goes up to 67.
- Delayed Retirement Age: You can also delay the claim of your retirement benefits until age 70. If you wait until then, you will continue earning benefits. However, benefits stop accruing at age 70, so there may not be any reason to delay the claim of benefits past age 70.
How Should You Decide When to Claim Benefits?
When deciding the right time to claim your Social Security benefits, there are four key factors to discuss with your financial advisor. Those include:
If you expect to live decades after retirement, delaying benefits to get a larger check could be crucial to your long-term financial stability. However, a genetic predisposition to certain illnesses or poor health may make it more reasonable for you to claim earlier.
Your Cash Needs
Your other resources, such as a traditional pension or investment portfolio, should be considered when considering Social Security benefits. These provide more flexibility for your decision-making process.
If you require Social Security benefits to cover your expenses, you may want to consider delaying retirement or finding a part-time job until you reach full retirement age. This ensures you’ll be able to maximize your benefits.
Your Martial Status
- Married: Once you reach full retirement age, you can take all your Social Security benefits or half of your spouse's.
- Divorced and were married for ten years or more: You may be owed up to half of your ex-spouse's full Social Security retirement benefits.
- Widowed: Depending on which is higher, you may receive your own retirement benefits or all your spouse’s benefits.
Additionally, a financial planner can help you determine how to best use the combination of a worker, spouse, and survivor benefit.
Your Employment Status
When you take Social Security early, you may see a reduction in your benefits if you earn a wage or are self-employed. But if expenses are tight, filing for Social Security at age 62 and taking lower benefits may be the right solution for your needs.
The Importance of Meeting with a Financial Advisor
Deciding when to claim Social Security benefits isn’t easy and should be considered seriously as you approach retirement age. Talking with your financial advisor can help you better understand your options, weigh the benefits, and ensure you’re working together to decide the best time to apply for Social Security.
Eric Braund is the Founder and Chief Financial Officer at Black Walnut Wealth Management, a financial advisory firm providing financial counsel and fiduciary investment services to individuals, families, and private foundations throughout the Traverse City and Northern Michigan region. He is a CERTIFIED FINANCIAL PLANNER™ professional and a Chartered Retirement Planning Counselor™ with 25 years of experience. He also has a bachelor’s degree in finance from Hillsdale College. Braund is passionate about offering services rooted in hard facts and sound reasoning combined with meaningful, long-term relationships so that his clients can experience less stress and have more time and energy to invest in what they love.
Braund is a Northern Michigan native who truly enjoys all the area offers, including hiking, biking, swimming, skiing, volleyball, and boating. He loves spending time with his family — his wife, Jodi, and his two children — and maintaining a balanced life. To learn more about Eric Braund, connect with him on LinkedIn.
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