Even if you're entering retirement with a modest amount of savings, you'll probably end up relying on Social Security to some degree, so the better you're able to maximize those benefits, the happier you'll be. With that in mind, here are a few critical moves you must make before officially filing for benefits.
1. Know when you're entitled to your full monthly benefit
Your Social Security benefits are calculated by taking your 35 highest-paid years of wages, adjusting your earnings for inflation, and applying a special formula to those figures. But you can't claim your monthly benefit in full until you reach what's known as full retirement age, or FRA.
FRA isn't the same for everyone. It's based on year of birth, as follows:
Year of Birth
Full Retirement Age
66 and 2 months
66 and 4 months
66 and 6 months
66 and 8 months
66 and 10 months
1960 or later
Make sure to commit your FRA to memory, because if you don't, you could wind up filing for Social Security at the wrong time -- and hurting yourself financially for years because of it.
2. Understand the ramifications of filing early
Though FRA is when you're entitled to your full monthly benefit, the Social Security Administration (SSA) allows you to claim benefits as early as age 62. There's just one catch: For each month you file ahead of FRA, your benefits will be reduced by a certain percentage. The maximum reduction you'll face is 30% if you sign up for benefits at 62 with an FRA of 67, but filing even one year early will cut your benefits by 6.67%. That's a lot of money to potentially give up in your lifetime.
To be clear, the reduction you face in benefits by filing early will remain in effect for the rest of your life unless you manage to do two things: withdraw your benefit application within a year, and repay the SSA every dollar it paid you within a year. The latter isn't an easy thing to do, so be sure to understand the toll claiming benefits early will have on your finances if you're tempted to go that route.
3. Calculate the upside of filing late
While claiming Social Security early will generally cause your benefits to go down for life, delaying your filing has the opposite effect -- you'll boost those monthly benefits on a permanent basis. For each year you delay benefits past FRA, they'll increase by 8%, up until age 70. This means that if you have an FRA of 66, waiting until 70 will give you a 32% boost. It could therefore be worth tapping other income sources, like your retirement savings, or even working a bit longer than planned, to snag that guaranteed increase and enjoy a higher monthly benefit for life.
4. Consider your spouse's needs
If you're single, filing for Social Security is generally a less complex decision than it is for married folks. But if you fall into the latter category, you'll think to think about the way your filing decision could impact your spouse.
If you expect your spouse to outlive you by many years, you may want to avoid filing for benefits early, since your spouse will be entitled to survivors benefits equal to the amount you end up collecting. Furthermore, if your spouse never worked and is therefore entitled to a spousal benefit of up to half of your monthly benefit at FRA, you should know that if you delay your filing, your spouse will have to wait on his or her money as well. Therefore, take your spouse's needs into account when landing on a filing age.
The more thought you put into your decision to claim Social Security, the more content you're likely to be with it. Check these key moves off your list prior to filing, and with any luck, you'll set yourself (and your spouse, if you have one) up for a comfortable retirement.
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