When is the right time to file for Social Security?
Of Americans who are eligible to claim Social Security, a surprising 32.6% claim at age 62, the earliest age possible.1
Even more surprising, almost 60% claim before their full retirement age (FRA) — which is when they become eligible for their full primary insurance amount (PIA) — while only 25.3% claim at their full retirement age.2
Why? While some may claim Social Security early because they don’t have the retirement funds necessary to delay until they reach their FRA or later, others simply aren’t aware that the longer you delay taking Social Security, the larger the monthly benefit you’ll receive when you do finally claim. And still others are not aware of the rules and strategies available around major life events such as divorce or the death of their spouse.
So, when should you take Social Security? Here are some strategies to help you make the right decision:
1. Delay Social Security until you reach FRA
For every individual born in 1960 and after, their full retirement age is 67 years old. However, they are eligible to take Social Security retirement benefits starting at age 62 — just at a reduced benefit amount.
How reduced? Let’s say your PIA is $2,000 a month. This is the amount you would get if you claimed Social Security at your FRA (age 67 in this example). If you claim at age 62, you would only receive 70% of this amount, aka $1,400 per month.3
Each month you wait to claim Social Security lets you keep more of your PIA. If you wait until 63, you get 75%. Age 64 gets you 80%, and age 65.5 gets you 90%.
As you can see, it can be a big benefit to wait as long as you can to claim Social Security — at least until you reach FRA. This is especially true if you plan to continue working past age 62. Those who have claimed Social Security cannot earn more than $19,560 in 2022 if they are younger than their FRA without having some or all of their benefits withheld.4
For every $2 they earn above that limit, they will have $1 withheld from their Social Security benefits. In the year in which you will reach your FRA, you can earn up to $51,960 while taking Social Security.5 Once you reach your full retirement age, there is no limit.
2. Delay Social Security until you turn 70 years old
It’s not just waiting until your FRA that can benefit you. If you delay claiming Social Security benefits past your FRA, there is an 8% increase in your PIA per year until you reach age 70.
In our example of someone born in 1960 with a PIA of $2,000 a month, waiting until 70 means they’ll receive 124% of their PIA, or $2,480 a month. That’s over $1,000 a month more than if the individual claimed Social Security right at age 62.
3. Claim spousal benefits at the right time
Whether or not you or your spouse should claim Social Security’s spousal benefit, and when you do so, can depend on a number of factors.
First, the spousal benefit can be up to 50% of your spouse’s PIA. Is this amount higher or lower than what your own benefit would be? If, through the majority of the marriage, your spouse worked while you did not, claiming spousal benefits would likely be the right option. But if you both worked, you might both be better off claiming your own respective benefits. Note that if your spouse has already filed for their own benefits, the Social Security Administration will automatically give you the higher of the two amounts you’re eligible for when you file. This is a process known as deemed filing.
Second, the spousal benefit is 50% only if the spouse claiming the benefit has reached their FRA. The same benefit reduction comes into play here. If you’re born in 1960, claiming a spousal benefit at age 62 would net you 32.5% of your spouse’s PIA, instead of 50%.
Third, you cannot claim your spousal benefit until your spouse has claimed their benefit. So, if your spouse is waiting until their FRA or even until age 70 to claim, that would delay your ability to start taking your spousal benefit. And although it would result in a higher spousal benefit for you, too, you and your partner should factor in spousal benefits when determining what age both spouses should start claiming Social Security.
Note that if you’re divorced and currently unmarried, but you were married for at least 10 years and have been divorced for at least two years, you can claim your spousal benefit based on your ex-spouse’s PIA, regardless of whether or not they have filed for their own benefit. You both must be age 62 or older in order to do this.
4. File a restricted application, if you are eligible
Married individuals born on or before January 1, 1954, as well as widows or widowers who are at least 60 years old, can file a restricted application.
This means the married individual can file for their spousal benefit as early as age 62 (assuming their spouse has also filed), and suspend claiming their own benefit until age 70 once it’s at its highest amount possible (assuming this amount will then be higher than their spousal benefit).
The widow(er) can file for their survivor benefit as early as age 60 (50 if they are disabled) and wait until their FRA or age 70 to begin taking their own benefit, again taking advantage of delayed retirement credits. Survivor benefits are 100% of the deceased spouse’s PIA, so this strategy depends on the widow(er)’s own PIA amount being higher at FRA or age 70 than the deceased spouse’s PIA. (Note that the individual is subject to the earnings limits discussed above, which can impact at what age they choose to claim survivor benefits.)
5. Work with an advisor to perform a breakeven analysis
Working with a financial advisor can help you identify what your total lifetime Social Security benefit would be at different ages, in different situations, so you can make decisions about when to take Social Security, as well as what type of benefit you should claim.
This is true for common situations, such as couples wondering if their financial situation will allow them to delay Social Security until their FRAs, and for less common situations like those discussed above.
For example, say you are 62 years old and you have three children under the age of 18. If you file for Social Security, your children (and potentially your spouse) would be eligible for Social Security benefits up to 50% of your PIA, for a maximum amount of 150-180% of that PIA, until they turn 18 years old (or 19 if they are a full-time high school student).6This means if your PIA is $2,000, the maximum benefits your children and spouse could claim together could be $3,600.
In this situation, a financial advisor can help you determine whether you should file for Social Security now and let your children claim benefits until they become ineligible, or if you’re better off waiting until you reach FRA or age 70 to file.
It all comes down to a breakeven analysis. A financial advisor will walk you through different claiming scenarios to see how they impact you and your family, so that you can determine what makes most the sense. Remember, it’s not necessarily about the largest lifetime benefit. Your cash flow needs come into play, too.
At Wipfli Financial, our advisors can perform your breakeven analysis and help you make the right decisions for you and your family. Contact us to get started or learn more.
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