You have a lot of options for when to start your Social Security retirement benefits. Although you have a full retirement age designated by law -- which is between 66 and 67 -- you could begin receiving checks as early as age 62 or could delay until you're 70.
There are advantages to waiting as long as possible, as claiming before full retirement age means you'll get smaller monthly checks, while delaying enables you to increase monthly income through earning delayed retirement credits.
While some financial experts advise waiting until 70 to start benefits because these higher monthly checks help ensure you have enough money throughout retirement, this isn't necessarily the right choice for every pre-retiree. In fact, before you decide to delay filing for retirement benefits as long as possible, you need to ask yourself three key questions.
1. Do you expect to outlive your life expectancy?
Retirees who start receiving Social Security benefit checks early get smaller checks every month than those who delay. There's a small reduction in the standard benefit for each month a retiree claims prior to FRA and a small increase for each month a retiree waits. The formula used to determine the increases and reductions is based on actuarial data and is designed to try to ensure seniors get the same lifetime benefits no matter how old they are when they start receiving them.
Of course, you may not pass away at the time that's predicted by actuarial tables. And if you live longer, you'll get higher checks for longer than it takes to break even for income you missed out on by waiting. The longer you live beyond your projected lifespan, the more extra money you'll end up getting.
It can take a lot of years to break even if you wait to start your Social Security checks, so you're taking a gamble when you delay. But if everyone in your family lived into their 90s and you're in great health, you may just want to bet that you'll beat the odds.
2. Do you want to receive the largest possible Social Security checks?
The effect of claiming Social Security benefits early can be dramatic. For each of the first three years you start getting checks prior to FRA, your standard benefit amount will be reduced by 6.7%. If you start your checks more than three years early, there's an additional 5% annual reduction.
When you delay the start of your benefits, on the other hand, the increase is a big one. You can raise the amount of your standard benefit by about 8% for each year you wait -- which means you could get a check that's 24% higher if you wait three years or 32% higher if you wait four years.
Waiting to get the maximum check not only means more income the year you start benefits, but it also means you'll get bigger raises. The Social Security Administration adjusts your check upwards in some years to keep pace with rising costs. Every increase is based on a percentage of your current check, so obviously, when you start with a larger amount of money and raises equal a percentage of it, the raises will be bigger than if you'd claimed a smaller benefit earlier.
3. Do you have savings to support you or a job you can do until age 70?
Many people don't want to wait until 70 to retire or can't wait until 70 because of health issues or a lack of job opportunities.
If you're not able to work to 70, you'll need other income to rely on if you want to wait to claim your Social Security benefits. And if this other income is savings, you need to make sure you aren't withdrawing so much that your account balance dips too low and you risk running out of money in the future.
Claiming your Social Security checks before 70 would be better than struggling to live on too little for years or drawing your retirement accounts down to nothing -- even if early filing does reduce your checks.
These answers will help you decide when to start your Social Security benefits
By thinking about how long you'll live and assessing your overall financial situation, you can make the decision that's best for you about when to start your Social Security checks.
While waiting undeniably has some big advantages and you'll appreciate the higher monthly checks when they start coming, you don't want to leave money on the table or struggle to support yourself for years just to get a little extra money later on. But if you think you'll live long enough to make waiting worth it, and you can survive without Social Security, you may just find a delay pays big dividends for you.