When Should I Claim my Social Security Benefit

As you get close to retiring, you may hear theories about the ideal time to claim your Social Security benefit. Many believe it is best to claim as soon as you are eligible at age 62; others believe waiting until age 70 is prudent. The truth is that every situation is different. Your “ideal” time may be quite different than your co-workers or neighbors. The age when you decide to retire significantly impacts your Social Security benefit, but the details of how this works can be somewhat complicated. While early retirement means immediate access to funds, the financial penalty could possibly imperil your security and comfort after you stop working.

You are eligible to receive Social Security retirement benefits at age 62, as long as you have worked and paid income tax for at least 10 years (or 40 quarters). Your benefit amount depends on three things: your income, # of years you have worked, and your age when you claim. Essentially, the more you earn and the longer you work and wait to claim Social Security, the higher your benefit. You will get the smallest benefit by claiming at age 62 (the earliest date) and the highest benefit if you wait until age 70 (the latest date). Claiming after age 70 provides no additional benefit.

You will be penalized if you claim Social Security benefits before your full retirement age (FRA). For anyone born in 1960 or later, your FRA = age 67. Waiting to claim benefits after your FRA means your benefit will be increased. For example, if you claim at age 62 instead of your FRA of age 67, you will receive a 30% lower benefit annually for the rest of your life. If you postpone claiming until age 70, you will receive a 24% higher benefit than your FRA benefit. The chart below illustrates the difference in annual benefits between age 62 and age 70:

When you claim not only affects your monthly benefit, but also impacts your total lifetime benefit if you live to the average life expectancy of someone your age. Consider the hypothetical case of Joe. Joe decides to retire at age 62 and claim SS benefits at 62 instead of waiting until his FRA of 67. If he had waited to age 67, his monthly benefit would be $2,000.

Instead, he receives 30% less each month, or $1,400 ($600 less). This $600 monthly difference is locked in for life. While his benefit may rise each year with inflation adjustments, it will always be $600 less than the FRA benefit. This reduction also impacts benefits paid to a surviving spouse after he dies.

The lower age 62 benefit impacts total lifetime benefits. If he lives to age 85, he will receive $45,600 less than waiting until 67 to claim. Retiring at 62 means getting $1,400/month for 23 years (total = $386,400). By waiting to 67, he will receive $2,000/month for 18 years (total = $432,000). And waiting until age 70 provides $2,480/month for 15 years (total = $446,400), or $60,000 higher than claiming at age 62.

But what is best for Joe? It depends. If cash flow is tight after he retires at 62, he may be better off claiming Social Security at 62 rather than withdrawing funds from taxable accounts and retirement plans. In addition, figuring out the “ideal” age depends on how long you will live, which no one knows. SS benefits are based on actuarial calculations about average lifespans. If you die before your early 80’s, your lifetime benefit will likely be higher by claiming earlier. Conversely, if you live into your later 80’s or 90’s, you will have a higher lifetime benefit if you claim at age 67 or even age 70.

Take the time to assess your personal situation as you approach your 60’s. Reach out to a financial advisor who can help you figure out your best claiming strategy. If you are not currently working with FPS, we would be happy to talk with you.

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Best regards,

Janet Rhodes Friedman, CFP®, CDFA®, MBA Janet@PlanWithFPS.com

617-630-4978

Financial Planning Solutions, LLC (FPS) is a Registered Investment Advisor. Financial Planning Solutions, LLC (FPS) provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client. Information herein includes opinions and source information that is believed to be reliable. However, such information may not be independently verified by FPS. Please see important disclosures link at the bottom of this page.