You must choose what to do with Social Security if you are approaching retirement or have already done so. You may file for checks anytime between 62 and 70, but not if you quit your job.
Here’s what to consider when deciding when to file for Social Security.
How old are you now, and when will you fully retire?
The most crucial information to understand before applying for Social Security is your full retirement age (FRA) and how it relates to your present age.
The Social Security Administration sets your full retirement age, and yours can fall in between the following depending on the date you were born:
- If born between 1943 and 1954, your FRA is 66.
- If born in 1955, your FRA is 66 and two months.
- If born in 1956, your FRA is 66 and 4 months.
- If born in 1957, your FRA is 66 and six months.
- If born in 1958, your FRA is 66 and 8 months.
- If born in 1959, your FRA is 66 and 10 months.
- If born in 1960 or after, your FRA is 67.
You can file a claim at your FRA to get your regular benefit, often known as your Primary Insurance Amount (PIA). Your PIA is determined by considering your 35 greatest earning years to derive a proportion of average wages. However, most people do not apply for benefits at their full retirement age.
If you’re considering filing an early claim, you should be aware that doing so will result in a permanent 5/9 of 1% reduction in your normal benefit for a period of up to 36 months. Benefits are then further cut by 5/12 of 1% per month. Therefore, the penalty would only lower a person’s monthly income by a maximum of 30% if they had an FRA of 67.
On the other hand, filing a claim after your FRA allows you to delay filing until age 70, which will permanently boost your payment. If you wait past FRA, your check will grow by 2/3 of 1% per month, for a yearly benefit increase of 8%.
What other earnings do you have, if any?
Since benefits from Social Security only replace approximately 40% of pre-retirement income, they won’t be sufficient to support you on their own. You must have a strategy involving additional revenue streams. You might wish to delay starting Social Security if you haven’t determined how much your investments or pension will offer to ensure you have enough money to live on.
Of course, it is feasible to work and receive retirement benefits simultaneously. However, if you work while receiving benefits and have not yet reached FRA or won’t reach FRA at any point in the year, you will forfeit $1 in payments from Social Security for every $2 earned over $19,560 in 2022. And if you work before hitting FRA but do so later in the year, you will forfeit $1 for every $3 made beyond $51,960.
Suppose you need to work to complement your benefits and earn enough to lose a sizable percentage of your retirement income. In that case, filing for Social Security isn’t much benefit.
How is your overall health?
Your health is a significant consideration when determining when to begin your checks. You can forfeit checks you are entitled to if you delay filing for benefits in the hopes that you will eventually receive enough money to compensate for the lost income.
However, if your health is poor, you risk dying before you receive much compensation. Applying for Social Security early is a wise decision to maximize the lifetime value of your benefits in those circumstances.
What impact will your action have on your spouse?
Last but not least, consider your partner. If you earn more money than your partner, survivor benefits may be available to them after your death. These may be bigger than their retirement benefits, but your partner will have less money each month if you’ve taken your benefits early and paid the associated penalties.
You can decide whether to file your claim right away or wait so that you can enhance your benefit and any survivor’s benefit your spouse may wind up receiving.
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