Whether you want to leave work at 62, 67, or 70, claiming the retirement benefits you are entitled to by federal law is no casual decision. You will want to consider a few key factors first.
How long do you think you will live?
The longer you think you will live, the better it may be to claim later. If you start receiving Social Security benefits at or after your Full Retirement Age (FRA), your monthly benefit will be larger than if you had claimed at 62. That is because age 62 is when you generally become eligible to collect Social Security, but only a partial amount. Receiving the total amount requires you to wait for your FRA, which is currently 66 and 10 months for those born in 1959. However, it will continue to rise to 67 in 2022 for anyone born during and after 1960.
If you file for benefits at that 67 or later mark, chances are you probably:
A) Worked into your mid-sixties
B) Are in fairly good health, and
C) Have sizable retirement savings.
If you sense you might not live into your eighties due to illness or other health conditions, or you really need retirement income, then claiming at or close to 62 might make more sense. If you have an average lifespan, you will, theoretically, receive the average amount of lifetime benefits regardless of when you claim them; the choice comes down to more lifetime payments that are smaller or fewer lifetime payments that are larger. For the record, Social Security’s actuaries project the average 65-year-old man living 84 years and the average 65-year-old woman living 86.6 years.
Will you keep working?
You might not want to work excessively since earning too much income can result in your Social Security being withheld or taxed.
Before your full retirement age, your benefits may be lessened if your income tops certain limits. In 2021, if you are 62-65, for example, and receive Social Security, $1 of your benefits will be withheld for every $2 that you earn above $18,960. If you receive Social Security and turn your FRA (i.e., 66 and 2 months for anyone born in 1955) this year, then $1 of your benefits will be withheld for every $3 that you earn above $50,520.
Social Security income may also be taxed above the program’s “combined income” threshold. (“Combined income” = adjusted gross income + non-taxable interest + 50% of Social Security benefits.) Single filers who have combined incomes from $25,000-34,000 may have to pay federal income tax on up to 50% of their Social Security benefits, and that also applies to joint filers with combined incomes of $32,000-44,000. Single filers with combined incomes above $34,000 and joint filers whose combined incomes surpass $44,000 may have to pay federal income tax on up to 85% of their Social Security benefits.
When does your spouse want to file?
Timing does matter. For some couples, having the lower-earning spouse collect first may result in greater lifetime benefits for the household.
Finally, how much in benefits might be coming your way?
Visit ssa.gov to find out, and keep in mind that Social Security calculates your monthly benefit using a formula based on your 35 highest-earning years. If you have worked for less than 35 years, Social Security fills in the “blank years” with zeros. If you have, say, just 33 years of work experience, working another couple of years might translate to a slightly higher Social Security income.
Your claiming decision may be one of the major financial decisions of your life.
Your choices should be evaluated years in advance, with insight from the financial professional who has helped you plan for retirement. If you need guidance regarding your Social Security benefits, we are here to help. Schedule a meeting today to discuss the intricacies of your financial plan.