Before proceeding with submitting paperwork to the Social Security Administration to claim benefits this year, it’s important to ensure that you’re making the right decision that aligns with your retirement goals. To avoid any future regrets, consider asking yourself these three questions to help you make a confident and informed choice about your Social Security benefits.
At your full retirement age (FRA), Social Security provides you with a standard benefit that is determined by your birth year, with the FRA ranging from 66 years for those born in or before 1954 to 67 years for those born in 1960 or later, gradually increasing each year. This benefit is calculated based on your average earnings. However, you have the flexibility to start receiving payments as early as age 62, although your benefit will be reduced for each month you claim it ahead of your FRA. Alternatively, you can choose to delay your claim, which will increase your standard benefit until you reach the age of 70.
By claiming now, will you increase or decrease your standard Social Security benefit?
If your FRA is 67 and you claim benefits at 62, your payments will be reduced by approximately 30% of the standard benefit, with benefits being reduced by around 6.7% for the first three years of early claim and an additional 5% per year for each year prior. Conversely, if you delay taking Social Security until age 70, your benefit will increase by 8% per year, resulting in no further increases beyond age 70.
To make an informed decision about claiming Social Security benefits, it’s important to understand how your current age will affect your payment. Will you receive the standard benefit amount, or will your check be higher or lower? Knowing this can help you make a well-informed choice. It’s possible that claiming early for a reduced benefit might be the right decision if you’re eager to retire or don’t anticipate living long enough for a delayed claim to pay off. However, it’s crucial to weigh the trade-offs, since filing early will permanently reduce your payment.
Are You Equipped with Sufficient Sources of Support?
Social Security benefits may not offer as much income as anticipated, with their primary purpose being to replace only around 40% of pre-retirement income. As such, it’s essential to have a realistic understanding of how far this money can go before making a claim.
If you haven’t saved enough money for retirement, claiming Social Security benefits may not be the best option for you. It may be worthwhile to consider working longer to bolster your savings and maximize your Social Security check, particularly if it will be a significant source of income.
Are You Aware of How Your Claiming Choice Affects Your Spouse?
In addition, it’s important to consider how your choice to claim Social Security benefits will impact your spouse, should you have one. This is because, upon your death, your spouse may be eligible for survivor benefits, and they will have the option to receive either their own benefit or your benefit. If you were the higher earner and delayed your Social Security claim as much as possible, your spouse would receive the largest possible survivor benefit. Conversely, if you claimed early and received a reduced check, your spouse would receive a smaller amount to live on.
Conversely, your spouse may be anticipating your claim to access the Social Security spousal benefit. However, they cannot make this claim until you have claimed your retirement benefit. Therefore, if it is advantageous for you as a couple to initiate your benefits as soon as possible to enable your spouse to access their Social Security income, you may decide to move forward with a claim in 2023.
By carefully considering these three questions, you can make a well-informed decision regarding one of your most crucial sources of guaranteed income as a retiree.