One of the most difficult decisions around retirement is when you choose to take your Social Security benefits. Deciding when to claim Social Security can make a difference in your monthly bottom line early in retirement and also influence your opportunity for a secure financial future later in life. Here are a few things to consider.
Before You Retire
Your monthly Social Security Benefit amount is calculated based on the number of years you have worked and the taxes you have paid into the Social Security Benefits program. Social Security counts the years you have paid taxes as “credits” for years that you have worked. For example, if you were born in 1929 or afterward, you must have 40 credits to receive Social Security benefits when you retire. This is equal to about 10 years of work.
Your benefit amount is also calculated by the number of credits you have earned during your working years. Fortunately, the Social Security Administration has made verifying your expected benefits easier by setting up an online account. It is worth double-checking your earnings to catch errors and factor in your expected benefits as you strategize for retirement.
What Age Should You Claim?
Several ages should be considered when deciding when to claim Social Security.
• Early Retirement Age: The earliest age you can claim Social Security benefits is 62. However, if you claim Social Security early, you will be penalized for not waiting until the full retirement age via reduced benefits.
• Full Retirement Age: This is the age when you are eligible to receive the full amount of your Social Security benefits. The full retirement age is calculated based on the year you were born. For example, for those born between 1943 and 1954, the full retirement age was 66. If you were born between 1955 and 1960 or beyond, the full retirement age rises to 67.
• Delayed Retirement Age: You can also delay the claim of your retirement benefits until age 70. If you wait until then, you will continue accruing opportunity for higher monthly income when you do retire. However, potential benefits stop increasing at age 70, so there is likely not any good reason to delay the claim of benefits past age 70.
Deciding when to claim Social Security benefits is important as you approach your retirement age. Cases can be made for taking Social Security early, late, or any time in between, but without looking at your comprehensive financial picture it’s hard to use any particular rule of thumb. The interplay between Social Security, Medicare, and other retirement decisions can have a major impact on your financial future, and sometimes you can’t easily undo decisions if you make the wrong choice!
There is a lot of information available online about Social Security, but of course we believe it’s wise to engage an advisor with experience and tools to help you make the right decision for you — and more importantly, be confident in that decision.
Gene Gard is Chief Investment Officer at Telarray, a Memphis-based wealth management firm that helps families navigate investment, tax, estate, and retirement decisions. Ask him your questions or schedule an objective, no-pressure portfolio review at letstalk@telarrayadvisors.com. Sign up for the next free online seminar on the Events tab at telarrayadvisors.com.
