In one sense, Social Security is automatic. You qualify for benefits through working and paying taxes, and when it’s time to retire, the Social Security Administration tells you the size of your benefit.
However, treating Social Security passively like this means you aren’t likely going to maximize your benefits. By taking a few key factors into consideration, you can help boost your payout when you retire — or at least optimize it for the lifestyle you lead. Here are the most important things to consider before you claim benefits.
Your age is one of the two single largest factors affecting the size of your Social Security benefit. Although you can file for Social Security retirement benefits as early as age 62, the longer you can hold out to take your benefits, the higher they will be — at least, until age 70. For those born in 1960 and later, “full retirement age,” or the age at which you receive your standard benefit, is 67. For each year between 67 and 70 that you delay filing, your benefit jumps by 8% per year, or 24% if you wait the full three years. Claiming as early as 62, on the other hand, can reduce your benefit by as much as 30%.
Your Earnings Record
Coupled with your age, your earnings record is one of the primary determinants of the size of your Social Security retirement benefit. Although you qualify for benefits with just 40 “quarters of credit” — or effectively 10 years of work — the amount of your payout is based on your highest 35 years of earnings. If you’re thinking of retiring but have only worked for 30 years, for example, you’ll be short-changing your benefit for the rest of your life. If there’s a way for you to put in the time and reach a full 35 years of earnings, you’ll be able to secure a higher benefit.
In a perfect world, everyone would wait to claim their Social Security benefits at age 70, when they are at their highest. But the reality is that a number of real-world factors might push you to draw your benefits earlier. Your health is a big part of this. If your family history — or even your own personal health record — suggests that longevity might not be in the cards for you, it can make sense to grab your retirement benefits as early as possible. On the other hand, if you pride yourself on keeping fit and everyone on your side of the family has lived past 100, you could end up with a considerably higher lifetime payout if you do wait until age 70. Remember, your Social Security retirement benefits continue until you die, even if you live an outsized lifespan.
Your Other Sources of Income
If you’ve got ongoing sources of income — such as investment income or a part-time job — it might make sense to push your benefit until age 70, or at least age 67. Since you may not be needing your Social Security to live off, deferring your claim and letting your benefit grow may make sense. If you’re approaching age 62 and Social Security will be your only source of income, however, you may not have any other choice but to file for benefits early.
Generally speaking, the spouse of a Social Security beneficiary is entitled to 50% of the primary recipient’s payout upon reaching full retirement age. If you file for benefits early and permanently reduce your own payout, you’ll be dropping your spouse’s potential payout as well. But the converse is true as well — if you wait until full retirement age to claim your own benefit, you’ll be boosting your spouse’s payout as well. One important thing to note, however, is that your spouse’s benefit can never exceed 50% of your benefit at full retirement age, even if you wait to file until age 70 and receive an enhanced payout for yourself.
Your Tax Situation
For some Americans, Social Security retirement benefits are nontaxable. However, once your total earnings exceed a certain threshold, they become at least 50% taxable, and potentially as much as 85% taxable. This is another reason that your outside income may affect the timing of your Social Security claim. If you have ongoing income that will drop off at age 67 or 70, you may be able to avoid taxation on those benefits if you wait to file until those ages.
Clearly, there are many variables that go into claiming Social Security benefits. In addition to doing your own due diligence and planning, it’s often helpful to speak with a financial advisor and/or tax specialist before you make your big decision.
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