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Be aware of when you should opt in
Technically, you can start receiving Social Security as early as age 62, despite the currently designated full retirement age of 67.
If you are ill and are uncertain that you’ll live to the break-even age of 80-81, opting into benefits earlier could be a good choice for you.
Starting your benefits at age 62 could also be a helpful option if you really need the cash and don’t have enough saved to support you until full retirement age. However, it might behoove you to wait. Here’s why:
Be aware that your benefit will be permanently reduced if you start claiming Social Security before your full retirement age (66-67), so if you’re able to hold off until then, it’ll be better for you in the long term. If it’s possible to wait even longer, your benefit will continue to increase until age 70, which is really enticing for those in a place to postpone. Every year you wait from 67 to 70, your benefit grows by 8%.
Another reason for waiting to take your benefits is that it may be hard to get the same level of return in the stock market every year.
In fact, if you wait to start collecting Social Security at 70 and live past 80-81 years old, you will actually receive more cash from your Social Security benefits than if you had started taking your benefits at full retirement age.
Your break-even age is determined by what age you begin accepting benefits and how many Social Security checks you receive in your lifetime. If you opt-in early, you may receive more checks over your lifetime, but each check will be less than if you wait until age 70 to start taking benefits. If you wait to age 70, the cash amount will be higher and ultimately you’ll earn more money in a shorter period of time.
Usually by age 81, you will have received more money from Social Security in your lifetime than you would have by starting your benefits earlier.
That said, if you have immediate financial needs or a health condition expected to shorten your lifespan, adjust this guidance to suit your situation.
Know when your spouse should file
Even though many Social Security restrictions were eliminated in 2015, couples can still optimize their benefits in several ways. If both of you are in very good health, it’s typically best for both of you to wait until age 70 to start claiming your own benefits.
However, if you’re concerned that one of you might not live past 80 or 81, consider having the higher earner delay claiming their benefits until age 70, while the other spouse opts to take their benefits sooner.
This strategy works well because survivor benefits work differently than spousal benefits. Even if the higher earner dies before age 70, the living spouse will still receive their partner’s benefit as if they had already begun taking it.
There’s another strategy to consider, if the benefit you’re going to receive as a spouse is higher than your own benefit (meaning you earned less than your spouse or you didn’t work consistently or at all). In this case, you can start claiming Social Security based on your spouse’s earnings as early as age 62, as long as your spouse filed for their own benefit first. This works particularly well when the higher earning worker is a few years older than the spouse and can file at full retirement age or later. Sometimes it makes sense to start claiming before age 70 when it delays a non-working spouse from enjoying those spousal benefits.
Understand your options around divorce and death
To claim on their record, you must be at least 62 and still unmarried, but your ex doesn’t have to have filed. In fact, no matter when you file, their benefit won’t be impacted.
If you are divorced and your ex-spouse has passed away, you can still claim survivor benefits on their record as early as age 60. Widows and widowers can also claim survivor benefits at the same age.
One extra benefit to a survivor is that they can first claim the survivor benefits, then switch to their own retirement benefit by age 70 if that amount is higher.
As you can see, there are still quite a few nuances at play when determining the optimal time to start taking Social Security benefits. Depending on your situation, it may be a better option to begin retirement benefits earlier. On the other hand, delaying retirement benefits might make more financial sense.
Much like your career, retirement isn’t a “one size fits all” life stage.
What’s important is that you make the right decision for your finances and future, and seeking professional guidance is often a very helpful next step.
— Lea Ann Knight, a certified financial planner and co-owner and managing partner at Better Money Decisions