As with many retirement planning decisions, there is no one right way to claim Social Security. The best time for you to file depends on several factors, ranging from your health, the size of your retirement savings, what other income sources you have, and your marital status.
Generally, people nearing retirement want to know if it’s better to take their benefit early or wait.
Ultimately, the goal should be to maximize your total income, not just your Social Security benefit. With that goal in mind, it helps to understand some of the pros and cons of claiming Social Security early versus delayed.
Claiming Social Security early vs. delayed
The earliest you can claim is age 62, for a permanently reduced benefit. If you take Social Security early, your benefit is permanently reduced for each month taken before your full retirement age, or FRA (either age 66 or 67). For example, if your FRA is age 66 but you claim Social Security at 62, then your benefit will be reduced by 25% (30% if your FRA is 67).
Every year you delay starting Social Security from age 62 up to age 70 entitles you to a higher benefit of up to 8% per year. A benefit at age 70 will be 76-77% higher than the payout if you start at age 62.
Pros and cons of claiming Social Security early
Again, claiming Social Security early means receiving a permanently reduced benefit. But that is still a guaranteed income source that is helpful for when you choose to retire.
Pros
- You start receiving guaranteed income to supplement your savings and other retirement income. Most people choose to retire in their early to mid-60s, and the Social Security benefit plays an important role in making that happen.
- You can spend less from your retirement savings, including your investment portfolio.
- Your spouse can start receiving a spousal benefit. This is helpful in the case your spouse is older than you and their earnings were lower than yours. Therefore, your spouse may qualify for a larger spousal benefit, which they cannot receive until you file for your own benefit.
- If you have a minor or disabled child at home, by filing early you will trigger your own reduced benefit but at the same time a benefit payable to your child.
Cons
- Your benefit is permanently reduced, which may be difficult for individuals who do not have other substantial sources of retirement income.
- You are essentially leaving money on the table either for you or a spouse that you could receive by waiting to file for a larger benefit.
- Your work options are limited because your benefit would be reduced if your work earnings reach a certain threshold. If you receive work earnings and Social Security income before the year you reach full retirement age, $1 is withheld for every $2 earned above $19,560 (2022). In the year you reach full retirement age, $1 is withheld for every $3 earned above $51,960 (2022). After you reach full retirement age, you may keep all your benefits, no matter how much you earn.
Pros and cons of delaying Social Security
Every year you delay starting Social Security from age 62 up to age 70 entitles you to a higher benefit of up to 8% per year. While more guaranteed income is generally good, it may not align with your retirement plan.
Pros
- You receive a larger guaranteed benefit for your retirement needs, which can be helpful if your other income sources are impacted by a market or economic downturn.
- Great for married couples: A higher-earning spouse can delay and grow his or her benefit. Meanwhile, the lower-earning spouse can file early and then switch to the higher spousal benefit once the higher-earning spouse turns age 70.
Cons
- You may have to rely heavily on your portfolio and other retirement savings while you wait to file. That could leave you with less financial flexibility later in retirement.
- Delaying can create a heavy drain on your other assets, which you may have plans to pass on. You can’t pass on Social Security income to your heirs like other assets.
- The risk of either you or your spouse passing away before getting to enjoy your larger benefit. If you expect a shorter life expectancy or medical problems, it typically makes sense to take advantage of your benefit while you can.
When it comes to choosing when to file for Social Security, you may want to work with a financial adviser to calculate a break-even analysis. This will determine the age when the amount you receive if you claim early equals the amount you would have received if you claimed later.
The appropriate age to file depends on personal factors, such as your assets, health and financial goals. And, if you’re married, there are a variety of claiming strategies that may make sense for your situation. The goal isn’t to just maximize your Social Security benefit but use it in a way that helps maximize your total retirement income.
Want to learn more about taking full advantage of your Social Security benefit? Watch the replay of our webinar, HOW TO MAXIMIZE YOUR SOCIAL SECURITY BENEFIT.
