When should Americans start applying for Social Security benefits? The answer to that question depends on individual circumstances. According to the Social Security Administration (SSA), you can start receiving benefits at age 62 or wait until age 70.
Within this time frame, various factors may come into play. Individuals with health issues might choose to start receiving Social Security early, while those wanting to continue working may opt to delay. So, what are the pros and cons of early claiming versus delaying benefits?
The Full Retirement Age (FRA) is determined by your birth year. For those born in 1960 or later, the FRA is 67, according to the Internal Revenue Service (IRS). At this age, you would receive 100% of your retirement benefits. Those born between 1943 and 1959 reach FRA at 66.
Let’s use someone born in 1960 as an example.
If you claim Social Security benefits early, the amount you receive will be less than if you waited until full retirement age. Additionally, you cannot make up for or supplement this reduced amount. While you would still get cost-of-living adjustments (COLAs), you won’t receive the full amount you would have received at age 67.
As per the IRS, if you apply for benefits at age 62, you would receive 70% of what you would get at full retirement age. Here is the percentage breakdown if you wait for more years:
– Age 63: 75%
– Age 64: 80%
– Age 65: 86.7%
– Age 66: 93.3%
– Age 67: 100%
This means that if your full retirement age benefit at 67 would be $1,000, and you start claiming at 62, you would receive $700 per month plus COLA. Spousal benefits would decrease to 32.5%.
Alternatively, you can choose to work beyond full retirement age without claiming benefits. By doing so, for each year past full retirement age, your benefits would increase by 8% until age 70, according to IRS regulations.
Regardless of whether you wait, you must apply for Medicare at age 65 to avoid penalties.
Many people worry about living longer, leading them to delay Social Security benefits to gain an additional 8% annually. But the critical question is, how long will you live? Is it financially advantageous to delay benefits?
According to data from the National Center for Health Statistics, the average life expectancy for males in the United States is 75.8 years and 81.1 years for females. Given these figures, is waiting until age 70 really worthwhile?
Let’s look at the breakeven point for delaying Social Security benefits until age 70. According to the Journal of Accountancy, this breakeven point typically falls between 12 to 14 years after starting to claim benefits. In other words, you need to live until 82 to reach the breakeven point and begin profiting from delaying benefits.
For married individuals, it’s often wise to have the higher-earning spouse delay applying for Social Security benefits. This not only boosts the applicant’s own benefits but also increases the future spousal benefits available.
If one spouse’s benefit amount significantly lags behind, they can opt to claim earlier and switch to spousal benefits later.
Married couples should discuss strategies for claiming Social Security benefits together and factor them into their overall retirement planning. Consult tax and legal advisors to tailor a plan that aligns with your goals.
Some individuals choose to claim benefits early due to concerns about the future of the Social Security system and its funding sustainability. According to SSA predictions, the system may deplete its funds by 2034, prompting some to start claiming benefits before reaching full retirement age.
In 2022, SSA data shows that 24.5% of new applicants began claiming Social Security benefits at age 62, slightly lower than the 26.1% in 2021.
While early claiming results in lower monthly benefits, it can be a reasonable choice in certain circumstances. For instance, if you can no longer work and your savings are insufficient to support you until FRA, early claiming may be necessary.
Moreover, if you have chronic health issues or a family history suggesting a shorter life expectancy, early claiming may better serve your interests.
If you’re undecided, log in to the “mySocial Security” website, create an account, and see the benefit amounts available to you each year between 62 and 70. Utilize this data as a reference for retirement planning.
For married individuals, the age at which you begin receiving benefits can influence your spouse. Assess both your and your spouse’s benefit amounts to determine whether one should delay while the other claims early.
Remember, there is a breakeven point for delaying benefits until age 70. Therefore, carefully crunch the numbers to ascertain if delaying your claim is most advantageous to you.