When it comes to claiming your Social Security benefits, there’s no “one size fits all” approach. But the strategy you use can have a major impact on how much money you could get. Before you make any decisions about when and how to claim Social Security benefits, take a step back and look at the big picture for your retirement. These six considerations are a good jumping-off point:
1. Your retirement income needs.
What are your retirement goals and how much income will you need to achieve them? Be sure to consider health care, housing, and food in addition to the things you want to do. Make a thorough list and price out each item so you’ll know how much money you’ll need coming in to fund these goals.
2. Your Full Retirement Age (FRA).
FRA is how old you need to be to start receiving an unreduced retirement benefit — and you can find this information on the Social Security Administration’s website. FRA used to be 65, but the federal government increased FRA because of longer life expectancies. Now, it’s between 65 and 67, depending on the year you were born. It’s important to keep in mind that claiming your benefits earlier (before you reach your FRA) will result in permanently reduced benefit payments. Delaying benefits, on the other hand, can help to increase each benefit payment by about 8% per year.
3. Your savings and investments.
If you want to retire early, will you have saved enough money to afford waiting to collect Social Security benefits? If not, taking your retirement benefits early may help you cover expenses without racking up debt (but, as previously mentioned, will permanently reduce your benefit payments). Alternately, you could liquidate some of your assets to help bridge the gap between retirement and when you begin claiming, if you choose to delay.
4. Your health and longevity.
If you are in good health and optimistic about how long you’ll live, delaying Social Security could mean receiving more money over the long term. If you’re single and in poor health or have a shorter life expectancy, however, you may not want to put your benefits off. For married couples, it might be better to delay claiming benefits if even one of the spouses has an average or above-average life expectancy.
5. Your future earnings.
If you are past your FRA, your benefits will not be reduced due to your earnings. But if you begin receiving Social Security before FRA, there’s a limit on how much you can earn and still receive your full monthly benefit. If you go over that limit, you’ll receive a smaller benefit payment. Note, however, that once you reach FRA, your monthly benefit will be increased to make up for the earlier withholdings.
6. Your taxable income.
Depending on your combined income, up to 85% of your Social Security benefits may be taxed. Even at 85%, Uncle Sam gets less than he would with some other retirement income sources. For example, 100% of distributions from a traditional IRA may be taxable if you contributed pre-tax dollars to the account. In the long run, delaying Social Security to increase your retirement benefit may reduce your overall tax liability if it means you’ll need to withdraw less of your taxable retirement funds.
Getting the most out of Social Security can be tricky. Before you decide when and how to start collecting your retirement benefits, think through all of the moving pieces of your retirement plan. This base of knowledge will help you figure out the Social Security claiming strategy that’s best for your personal situation.
Want to explore more? Check out our Social Security Planner to see how different claiming strategies might affect your benefits.