You probably want to retire with some sort of plan so you know how much you can safely withdraw each year and how long your money will last. But when it comes to claiming Social Security, people too often skip the planning and just sign up whenever.
The problem is that when you sign up has a significant effect on how much you get out of the program. Below, we'll look at how this works and how you can choose the best time to apply for benefits.
Timing is everything
First, you can't determine the best time to apply for Social Security if you don't know your full retirement age (FRA). The government assigns everyone a FRA based on their birth year. For those turning 62 in 2022 and later, it's 67. But for those who are over 62 already, their FRA is younger.
You must wait until your FRA to claim benefits if you want the full monthly amount that you're entitled to based on your work history. But you can sign up earlier or later than this if you choose. Every month you claim benefits below your FRA reduces your checks slightly, while every month you delay benefits past your FRA boosts your benefit until you reach your maximum benefit at 70.
Here's a look at what effect claiming one month, one year, and five years early, as well as one month, one year, and three years later, has on the average $1,564 monthly Social Security benefit.
If You Qualify for a $1,564 Benefit at Your FRA of 67 and:
Your Monthly Benefit Will Be:
Start at 62
Start at 66
Start at 66 and 11 months
Start at 67
Start at 67 and 1 month
Start at 68
Start at 70
As you can see, when you sign up for Social Security has a significant effect on the size of your checks. Starting at 70 could net you $844 more per month than signing up immediately at 62. And even starting just one month early can dock your checks by $9 per each. That might not seem like much, but over 20 years, that's over $2,100 lost.
How to choose the right time to sign up
Signing up later increases your checks, but it also means you'll receive fewer of them. If your goal is to get the largest lifetime benefit possible, the right claiming age hinges on your life expectancy.
If you qualify for the $1,564 monthly benefit mentioned above and you live until 85, you'd get about $349,020 from the program by waiting to sign up until 70. That's a lot more than the $302,220 you'd get by signing up right away at 62.
But if you only live until 75, starting early would be a much smarter choice. You'd get $170,820 out of the program by signing up at 62, compared to just $116,340 if you signed up at 70.
We can't know exactly when we'll die, but you should be able to come up with some type of estimate based on your personal and family health history.
Create a my Social Security account and use the calculator there to estimate your monthly benefit at various starting ages. Then multiply each of these numbers by 12 to get your estimated annual benefits. Finally, multiply your annual benefits by the number of years you expect to claim Social Security to get your estimated lifetime benefit.
For one of the examples in this section, I multiplied the $1,939 monthly benefit from the table above by 12 to get an estimated annual benefit of $23,268. Then I multiplied this by 15 to get the $349,020 lifetime benefit for someone who claimed benefits from 70 to 85.
We can't always do what we want
We may know when we'd like to sign up for Social Security, but sometimes life has other plans. If you're forced to retire unexpectedly or you or a family member becomes seriously ill or injured, you may have to sign up early even if that wasn't your original plan. But you shouldn't let that discourage you.
As the table above shows, even delaying benefits by one month can have noticeable effects on your Social Security checks. Take some time to reevaluate and see if you can get by without Social Security for a month or two before signing up. That way, you can still reap some of the benefits of delaying checks.
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