While it's tempting to grab your Social Security benefits as soon as you can (woo hoo, easy money!), claiming Social Security benefits at age 62 is not always your best option. When you claim your retirement benefits has a huge impact on how much money you get.
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So when should you file for Social Security? It depends -- read on for some tips on how to decide.
Why it matters when you claim your Social Security benefits
The Social Security Administration has a magic number that it calls "full retirement age." This number used to be age 65 for everyone; however, if you were born in 1960 or later, your full retirement age will be 67. If you were born between 1938 and 1959, your full retirement age will fall somewhere between age 65 and age 67 (see the Social Security website for your exact full retirement age if you fall into this group).
Anyone can claim Social Security benefits once they reach age 62, but claiming Social Security before full retirement age comes with consequences. The earlier you claim Social Security, the smaller your benefits checks will be -- permanently. On the other hand, if you wait until after full retirement age to claim your benefits, you'll get "delayed-retirement credits" that will permanently increase your Social Security benefits. These delayed-retirement credits max out at age 70, so it doesn't make much sense to wait longer than that.
At this point it may seem like it's always best to wait until age 70 to claim your Social Security benefits, but reality is more complicated than that. To figure out the best age for you to claim your benefits, consider the following questions.
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When do you plan to retire?
Claiming Social Security before you actually leave the workforce has one major pitfall. You see, if you're bringing in earned income (aka a paycheck) as well as Social Security benefits and you haven't reached full retirement age yet, you'll be subject to the Social Security earnings limit. That means if your income from work exceeds the SSA's limit for the year, then your benefits will be reduced by $1 for every $2 above that limit that you make. The earnings limit in 2017 is $16,920. As an example, if you brought home $30,000 in wages during 2017, your Social Security benefits checks for the year would be reduced by $6,540 (that's $30,000 minus $16,920, divided by two). The year you're going to hit full retirement age, the rules change slightly: The earnings limit rises to $44,880 per year, and the benefit reduction changes to $1 for each $3 you earned above the limit.
The good news is that once you hit full retirement age, the Social Security Administration will recalculate your benefit amount as though you had claimed Social Security later than you actually did. For example, if you claimed Social Security at age 62 and missed out on 12 monthly Social Security checks due to excess earnings, your benefits will be recalculated as though you'd claimed Social Security at age 63 instead. This generally results in a modest boost to your monthly benefits checks. However, if you're going to be bringing in significant money via a paycheck, it really doesn't make sense to claim your Social Security benefits at that time.
How's your health?
The longer your retirement is, the more Social Security checks you'll collect, and the higher your lifetime earnings from Social Security will be. So if your goal is to maximize your total earnings from Social Security, it makes sense to consider how long you expect to live.
If you're in relatively poor health and think it's unlikely you'll live as long as the actuaries say you should, then claiming Social Security early will maximize your lifetime earnings. Een though your benefits checks will be reduced, you'll receive far more checks than you would have by waiting, so the total amount you'll get over your lifetime will be higher. On the other hand, if you're in excellent health and believe you'll live longer than average, then waiting as long as possible to claim your Social Security benefits could result in higher lifetime payouts. If you think you'll have a pretty average lifespan, then claiming Social Security at your full retirement age is a sound decision.
How badly do you need the money?
Of course, all these considerations become pretty meaningless if you really need the money from Social Security. It's certainly better to claim your benefits a little early if the alternative is going bankrupt or deep into debt. Sure, you may not be able to maximize your lifetime earnings that way, but the consequences of running out of money are likely to be a whole lot worse. So if you truly need your Social Security benefits to meet your basic expenses, grab the money and run.
At the extreme opposite end of the spectrum, you may have enough independent retirement savings to meet your needs even without Social Security. If that's the case, then it won't make a big difference whether or not you maximize your benefits, so you could safely file for benefits early and enjoy that extra income while you're young(-ish).
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