With Social Security, Timing is Everything

For most of us, Social Security will provide a significant portion of our retirement income. It’s no wonder we tend to focus on “how much” we will receive, as a part of the retirement planning process. You already know that the final benefit amount depends largely upon your work history and earnings.

But since your benefit is also determined by the time at which you file your claim, a sound retirement plan should also ask “when”.

When you reach your “full retirement age”, defined by Social Security according to your date of birth, you can claim your full scheduled benefits. This age falls between 65 and 67 currently.

But, you can also claim benefits as early as age 62, or as late as age 70. And just a few years can make a significant difference to your monthly benefit amount!

Many people choose to go ahead and file their claims at 62, even though doing so will permanently lower the monthly benefit by 25 percent. Sometimes an earlier retirement isn’t a choice, and you simply need the money. But if not, it makes sense to pause and consider this choice carefully. Over the years, those lost benefits can really add up.

Here’s another reason to think twice: If you claim your benefits earlier than full retirement age, but decide to work in some capacity, part of your benefits could be withheld if your annual wages surpass a certain limit. Currently that limit is $17,040, and one dollar of your benefits is withheld for every two dollars that you earn above the threshold.

On the other end of the spectrum, you could wait past full retirement age (all the way to age 70) to claim your benefits. For each year that you wait, your monthly benefit will increase by about 8 percent. This is often the clear choice for those who can continue working, or don’t need the extra income just yet.

As you can see, the timing of your retirement should carry heavy weight in your decision. Since this is a choice that will impact you for the rest of your life, call us to schedule an appointment. We will run the numbers for every scenario and help answer other retirement planning questions you might have.