Should I claim my Social Security benefits now? It’s a common question, and it’s one that you’re very prudent in asking. Timing is the biggest facet in maximizing your benefits. Yet, you’ll get an array of answers on the best timing. Let’s break down three questions that will give you the most definitive answer to your question. Social Security: Timing Is A Crucial Decision Approaching Social Security age can be one of the most confusing times in life. While there’s a plethora of information to warn you of the potential pitfalls and mistakes, much of this info that’s supposedly designed to ‘help’ you actually leaves you with even more questions and confusion. Of course, no one wants to leave any portion of their benefits on the table due to a simple timing mistake in starting Social Security too early. So, the most crucial point is to understand how Social Security benefits are calculated. Timing greatly impacts the amount of your checks, and it also affects anyone claiming benefits off your work history. Ask Yourself Three Questions To Get The Timing Right Knowing the answers to the following three questions will help you time your Social Security most advantageously: 1. How Does Age Influence Benefits? While you can begin drawing Social Security benefits as early as 62-years-old, it may not be the best age to do so. Why? You’re penalized for starting your benefits this early. The check amount reduction is permanent, too. Only those who wait until they reach full retirement age, or FRA, can claim the full amount they are due, which is called a standard benefit. What is your FRA? Anyone born between 1943-1954 will reach FRA at 66-years-old. Those born in 1950 or later must add two months per year thereafter until the cap of age 67. If you decide to collect at age 62, then you’ll only draw about 70-75% of your standard benefit. That’s a big chunk of your fixed income during retirement to forfeit. On the other hand, you’re rewarded for each month of delay if you put off claiming your benefits once you reach FRA. This continues until you reach the maximum benefit age of 70. For FRAs of 67, that’s about 24% over what you would’ve received at age 67. For FRAs of 66, that’s about 32% over what you would’ve received at age 66. Should you delay? This is a highly individualized question. In most cases, delaying offers more money in the long-term. However, that’s all based on your life expectancy. If you’re in relatively good health, then it may pay off to delay. Meanwhile, if your health is poor, then it may be wiser to collect at FRA or even earlier. 2. What Other Applicable Factors Affect My Benefit Amount? Aside from age, you’ll want to consider three other main points: • What’s the sum of your lifetime income? You’ll want to ensure that you’ve at least worked 35 years, which is the length of work history Social Security uses to determine your benefit amount. Otherwise, you’ll have an automatic zero-income applied to your benefit amount, and that will drastically reduce even the highest earner’s payment. Of course, if you have some years of lower pay, such as before you gained a college degree or during job transitions, then you’ll want to try to roll those years off. Only the top 35 years are counted. So, working a couple extra years in a higher earning job to get the lesser earning years off the scale may certainly be worth the effort. • Do you owe taxes on your benefits? Taxes directly affect how much of your benefits you keep. Many with significant retirement income from other sources may not be able to avoid paying benefit taxes, but delaying your claim until your income is at its lowest is the most tax-friendly Social Security move. Why? You’ll pay taxes on up to 50% of your benefits if your combined income of adjusted gross income, nontaxable interest , and 50% of your benefits total to exceed $25,000 for singles or $32,00 for couples. If that total exceeds $34,000 for singles or $44,000 for couples, then you could face up to 85% of your benefits being taxed. • Are you working and claiming FRA benefits? Keep in mind that working and claiming Social Security benefits before FRA can drastically reduce your benefits. In 2020, this amounts to -$1 for every $2 earned past $18,240 for those not FRA. That amount is -$1 for every $3 over $48,600 for those reaching FRA in 2020 (prior to your birthday.) However, there is an upside. This isn’t a permanent reduction. Your benefits will be recalculated once you get to FRA. Monies withheld are included so that your benefit amount goes up. It’s just easier and less confusing if you avoid the above by waiting to claim your benefits until you reach FRA or fully retire. 3. How Will My Spouse Be Impacted By My Social Security Choices? If your 35 years of income is greater than that of your spouse, then you’ll want to pay close attention to when you claim your benefits. In such cases, the lower-earner spouse is entitled to receive up to half of your FRA benefit. Collecting prior to FRA lowers both your benefit draw and that of your spouse collecting based on your income.
If an early draw is needed, then the most common strategy here is for the lowest earning spouse to collect first. This enables that lower earning spouse to still automatically begin collecting a higher spousal benefit when their spouse collects at FRA.
As you can see, when it comes to Social Security benefits, all roads lead back to timing. Answering the above three questions should give you a very clear picture on your unique ideal timing.
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