Social Security: How To Decide Whether It’s Time To Start Claiming Benefits

Partial view of a USA Treasury Internal Revenue Service tax refund check showing the Treasury seal and image of the Statue of Liberty.
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On the one hand, Social Security seems like a fairly rigid, straightforward program: You pay your Social Security taxes during your working years and then reap the benefits after you retire.

But you actually have the choice of when you want to claim your benefits — between the ages of 62 and 70 — and that can have a huge impact on your lifelong financial security.

Combined with the fact that every person’s financial situation is different, you might want to strongly consider talking with a tax and/or financial advisor before you make this big decision. But to help steer you in the right direction, here are some of the most important things to consider when determining whether it’s time to start claiming benefits.

Your Health

No one knows for certain how long they will live, but there are some obvious factors that can help you make the best estimate. One of the most important is the state of your own personal health. Things like chronic illnesses or poor general health tend to shorten your life span; so, if you fall into either of these categories, you should factor that into your Social Security strategy. 

Genetics also play a role. If your family tree is full of ancestors who did not reach the average American life span, you might not either, all other things being equal. In any of these scenarios, getting your Social Security benefits as early as possible is likely a good strategy.

Are You Retirement Ready?

Your Other Sources of Income

The other most significant factor in determining when you should claim benefits is your overall income situation. In other words, don’t take Social Security early just to have the extra money. This is because every year that you wait to claim your Social Security, your benefit will increase, at least up until age 70.

If you have significant outside income from a 401(k), a pension, or perhaps even a side gig, you might be better off in the long run if you can delay your benefits as long as possible. 

Of course, the opposite is also true. If you have limited income outside Social Security, you may very well need to file for your benefits as early as possible. Even though your benefits would increase every year that you wait, your need for income right away might outweigh the possible long-term benefits of waiting to file.

The Current Interest Rate Environment

You might think the current interest rate environment has little to do with your Social Security claiming strategy, but you’d be wrong. If you want to optimize your lifelong earnings, this is actually a key consideration, particularly if you have other sources of income. 

Imagine a scenario in which you’re eager to draw your Social Security benefits and claim them at age 62. At the same time, the interest rate you can get on conservative investments such as U.S. Treasury bills is 3%. In this scenario — assuming you can get by without relying solely on Social Security — you’re digging yourself a bit of a hole in terms of your long-term finances. 

Are You Retirement Ready?

This is because every year that you delay filing for your benefits they are automatically increased. In fact, if your full retirement age is 67 — which it is if you were born in 1960 or later — you’ll be passing up increases of a whopping 8% per year from age 67 to 70. If you can get a risk-free boost in benefits of 8% per year when you could only safely earn 3% in the general market, you’re passing up some “free” money.

Your Spouse’s Social Security Situation

If you’re married, you can’t think of your own Social Security benefits in a vacuum. The timing of filing by you and your spouse will have a big impact on your overall lifelong payments.

Spouses earn the higher of their own Social Security benefit or up to 50% of their spouse’s. However, to get to that 50% level, a spouse has to wait to file until full retirement age, which is now 67 for most Americans. If you file instead at, say, 62, you might earn just 32.5% of your spouse’s benefit.

Things get worse if your spouse also claims Social Security before full retirement age. In that case, your spouse’s lifelong benefit is permanently reduced, which means your spousal benefit also would be less than the potential maximum.

The Bottom Line

As long as you qualify for Social Security benefits, they will be waiting for you once you retire. However, there are numerous choices you can make about when and how you file for benefits that can increase or decrease the amount you receive. For this reason, it’s always good to speak with a financial professional about all of your options. 

Are You Retirement Ready?

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