For Social Security Benefits, Timing Is Key

By Jim Ludwick, CFP

Learn more about Jim on NerdWallet’s Ask an Advisor

When to begin receiving Social Security benefits is one of the most frequently asked questions among those nearing retirement. The answer is complicated because there are so many factors involved, some of which are not easy to quantify or predict. For instance, you’d have to think through how long you’re likely to work, and even how long you’re likely to live.

However, by understanding how timing affects your benefits and thinking through a few key considerations, you can get a general sense of when it may make sense for you to claim. Of course, if you have more questions or a complex situation, it’s best to work with a professional to determine what is best for you.

How timing affects your benefits

Your Social Security retirement benefits are based on your contributions made over a lifetime of working, specifically on your highest-earning 35 years. At full retirement age (today it’s around 66 or 67 depending on when you were born), you are eligible for your complete benefit amount. Claiming before that point will reduce your benefit, and waiting until after will increase your benefit. Note that if you claim your benefit before full retirement age and your income is too high, you may not be eligible for the entire amount.

The earliest you can claim is at age 62, with a 25% reduction of your full retirement age benefit (the reduction amount is based on when you claim). If you delay and claim after full retirement age, you’ll receive around 8% more each year you wait, up to age 70 with a 32% increase over your full retirement age amount. For example, a $1,000-a-month benefit at age 66 would be $750 at age 62 and $1,320 at age 70.

When to start

Your decision about when to start collecting Social Security depends on how long you think you will live (and thus collect benefits), whether you need the money immediately, or whether you want to invest the money instead. It also depends on whether you value having the money now over receiving more money later on.

• Claiming early: You probably should start taking Social Security as early as possible (age 62) if you need the money, suspect you won’t live very long (say, past age 80) or you’d prefer to have and invest the money on your own rather than receive the government’s 8% return (the yearly increase in your benefit amount when you delay claiming) by waiting. However, if you plan to take Social Security earlier than full retirement age, be sure you understand the earnings limit, which requires you to pay back some or all of your benefits received once your earned income surpasses about $16,000.
• Claiming at full retirement age: How about waiting until full retirement age (around age 66 or 67), when you can make as much earned income as you like with no claw-back earnings test to worry about? For eligible recipients who continue to work past the full retirement age, the question is whether you want to use the money now or wait for larger benefits later on when you will likely no longer be working. Many who claim benefits at full retirement age, whether working or retired, begin using the money for discretionary expenses like travel or home remodeling projects, when they assume they will be more physically able to withstand the rigors of these activities.
• Waiting to claim: Finally, for those who stop working at or soon after full retirement age, your ability to delay claiming depends on whether you have other resources such as pensions or retirement savings you can rely on while waiting for a larger benefit. Waiting until age 70 (or some point after full retirement age) to begin receiving your delayed work benefit is a popular option among those who assume they will live past 80 and want to boost payments over the rest of their lifetime. Maximizing total Social Security payments, especially between married couples, usually means one or both delay benefits to age 70. The desire to leave a surviving spouse with the largest inherited benefit possible is another motivating factor for the higher-earning spouse to delay claiming. Lastly, cost-of-living adjustments on delayed-to-age-70 benefits are larger because they are applied to a larger amount of money.

Get help

This is general guidance about when it may make sense to take Social Security. Your situation could be quite different and require another strategy. When deciding when to claim, it’s best to seek professional advice. It’s too easy to make a mistake and regret it later.

Jim Ludwick is the founder of MainStreet Financial Planning.