It’s an important decision, but it may not be as tough to make as expected.
One of the toughest decisions you might have to make in the context of retirement planning is figuring out when to claim Social Security. The earliest age to sign up for benefits is 62. And from there, you can really file at any time. However, there are some key milestones to know about.
First, you’re eligible for your complete monthly benefit based on your personal income history at full retirement age. If you were born in 1960 or later, that age is 67, which means that filing at any age prior will result in a reduced benefit. And the closer to 62 you are, the more of a reduction you face.
Image source: Getty Images.
You can also rack up delayed retirement credits that boost your benefits by 8% for each year you delay Social Security past full retirement age. This incentive, however, runs out once you turn 70. So even though you’re allowed to claim Social Security beyond your 70th birthday, 70 is generally considered the latest age to sign up.
Now clearly, your Social Security filing decision doesn’t have to only come down to age 62 versus 70. There are plenty of ages in between you might land on. But since 62 and 70 represent opposite ends of the spectrum — the highest possible benefit you can collect as well as the lowest — it’s common to compare the two.
You may be having a hard time figuring out if 62 is a better Social Security filing age than 70, or vice versa. But actually, resolving that debate may be easier to arrive at than you’d expect.
There’s one simple question you need to ask yourself
You could easily make a pros and cons list for each Social Security filing age out there — ages 62 and 70 included. So if you’re not sure which age to favor, you should ask yourself one key question: What does my health look like?
Here’s why that’s important. Social Security is designed to pay you roughly the same lifetime benefit regardless of when you file.
The logic is that if you live an average lifespan, claiming benefits at 62 will result in lower monthly payments, but a greater number of individual payments. Filing at 70 will mean getting more money each month, but collecting fewer payments due to having to wait.
But what if you don’t live an average lifespan? If your health is poor going into retirement, you may not live as long as the typical retiree. In that case, filing at 62 is generally the better choice. This way, you’re likely to end up with more lifetime income.
On the flipside, if your health is terrific, claiming Social Security at 70 starts to make more sense. If you collect those higher payments for many years, you stand to come out ahead financially.
The numbers really do work out
Let’s apply some actual numbers to further illustrate this point. Say you’re entitled to $2,000 a month in Social Security at age 67. If you file for benefits at 62, you’ll get $1,400 a month instead. Hold off until age 70, and your monthly benefit is $2,480.
If you live until age 75, filing at 62 will give you a total of $218,400 in lifetime Social Security benefits. Filing at 70 will give you $148,800.
On the other hand, if you live until age 88, filing at 62 will give you a total of $436,800 in Social Security. Filing at 70 will give you $535,680.
So as you can see, the logic works. Filing early makes the most sense when you expect a shorter lifespan. Filing late pays off when you expect to live longer than the average American.
So if you’ve been struggling with your Social Security filing decision, just be honest with yourself about the state of your health and use it to help you make your choice. And if you’re still stuck, you could always meet halfway in the middle to hedge your bets.
