Social Security benefits can potentially make or break your retirement, especially if your savings are slim. The median amount baby boomers have saved for retirement is just $152,000, according to a report from the Transamerica Center for Retirement Studies. Although that may sound like a good chunk of change, when you’re spending tens of thousands of dollars per year, that money may only last a few years.
Although it’s typically not recommended to rely on your monthly Social Security checks for the majority of your income in retirement, if you don’t have enough in savings to make ends meet, you may have no choice. That makes it extra important, then, that you know how Social Security works so you can maximize your benefits. Fortunately, though, if you make a hasty decision about when to start claiming your benefits and you later find out isn’t the best for you, you might have a chance to make things right.
Choosing the right age to claim is critical
The amount you receive each month in benefits depends on the age at which you begin claiming. To receive the full benefit amount you’re entitled to, you’ll need to wait to file for benefits until your full retirement age (FRA) — which is either age 66, 66 and a certain number of months, or 67, depending on the year you were born.
You can begin claiming benefits as early as age 62, but if you claim before you reach your FRA, your benefits will be reduced by up to 30%. This reduction is permanent, so you’ll be stuck with smaller checks for the rest of your life if you claim early. But if you delay benefits past your FRA, you’ll receive a bonus amount on top of your full benefits. If you have a FRA of 67, you’ll receive your full benefit amount plus an extra 24% per month for the rest of your life if you wait until age 70 to claim.
Despite the reduction in benefits, 62 is the most popular age to claim. Forty-two percent of men and nearly half of women claim at this age, according to a report from the Center for Retirement Research at Boston College, and only around one in 10 men and women delay benefits past their FRA.
However, if you claim early and then change your mind and decide you’d rather have fatter checks, you have one chance to reverse your decision. You are allowed one opportunity to withdraw your application once you’ve begun claiming benefits, but you have to do so within 12 months of when you originally filed. In addition, you’ll have to pay back all the benefits you’ve already received. From there, you can delay benefits and wait to receive those bigger checks later.
When delaying benefits is the right choice — and when it isn’t
Sometimes delaying benefits past your FRA is the best Social Security decision you can make, while for other people, claiming early may be a smarter choice. The age you should claim largely depends on your life expectancy and your financial outlook in retirement.
The longer you expect to live, the better an idea it is to delay claiming benefits. Theoretically, it shouldn’t matter what age you claim because you should ideally receive the same amount in lifetime benefits. If you claim early, your checks will be smaller but you’ll collect more of them over your lifetime. If you delay benefits, you won’t receive as many checks, but each of them will be bigger.
However, the math here assumes that you’ll be living an average lifespan, which is around 84 years for men and 86 years for women, according to the Social Security Administration. If you live past that age, you’ll likely receive more money over a lifetime if you delay benefits because those bigger checks will add up.
There’s a good chance many retirees will live longer, too. In fact, a third of today’s 65-year-olds are expected to live past age 90, the Social Security Administration found, and an estimated one in seven will live to age 95 or beyond. If you delay benefits and live into your 90s, you could receive tens or even hundreds of thousands of dollars more over a lifetime than if you’d claimed early. These bigger checks are especially helpful if you don’t have much in savings, because they can help you enjoy your senior years more comfortably when your retirement fund runs dry.
That said, delaying benefits isn’t the right choice for everyone. If you have health issues and don’t expect to spend decades in retirement, you may be better off claiming early. Not only will that give you more time to enjoy your money, but you may also receive more over your lifetime than if you delay benefits. In addition, if you have a healthy retirement fund and don’t necessarily need the extra cash from Social Security, it may be smart to claim early so you can get a jump-start on your retirement plans when you’re still relatively young and healthy.
Deciding what age to claim Social Security benefits is one of the biggest retirement decisions you’ll make. Fortunately, though, if you make a mistake and claim earlier than you should, you have one chance to change your mind. By taking advantage of that opportunity, you could potentially boost your retirement income by thousands of dollars over a lifetime.
