One of the most critical decisions you can make regarding your retirement is when you choose to claim Social Security. While your retirement strategy should not depend on it as your sole source of income and financial security, deciding when to claim Social Security can make a difference in your monthly bottom line. Just like with actually entering retirement, to minimize the amount of stress both financial and emotional that you experience, timing is key.
Before You Retire
The amount you receive in Social Security benefits each month is calculated based on the number of years you have worked and the taxes you have paid into the Social Security program. The program 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.1
Your benefit amount is also calculated by the number of credits you have earned during your working years. The Social Security Administration uses a basic formula, inputting your lifetime earnings (adjusted for changes in average wages over the years) and the calculated average monthly earnings of the 35 years in which you earned the most, in order to arrive at your basic benefits number that you can likely expect to receive.1 This provides a good estimate that you and your financial advisor can use when developing your overall strategy.
Fortunately, the Social Security Administration has made it easier for you to verify your expected benefits by setting up an online account. It is worth double-checking your earnings to catch errors, if any, and factor in your expected benefits as you strategize for retirement.1
What Age Should You Claim?
There are several ages that 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 with a slightly reduced amount of benefits for not waiting until the full retirement age.1,2
- 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, the full retirement age goes up to 67.1,2
- Delayed Retirement Age: You can also delay the claim of your retirement benefits until age 70. If you wait until then, you will continue earning benefits. However, benefits stop accruing at age 70, so there may not be any reason to delay the claim of benefits past age 70.1,2
Deciding when it makes the most sense for you to claim Social Security benefits is an important factor you should consider before you approach your retirement age. Everyone’s situation and needs are different, so as always, it is important to talk with your financial professional and work together to determine the best time for you to apply for Social Security.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.